At a meeting of the Organization of Petroleum Exporting Countries on Thursday, no agreement was reached on a Saudi Arabian proposal for an oil production cap to stabilize crude prices. Iran refused to agree to it.
Oil prices fell sharply on the news that no agreement to limit output had been reached at the OPEC meeting, which was held in Vienna on Thursday. The US benchmark price dropped 88 cents to $48.14 per barrel.
"To come up with a number [an OPEC-wide production cap] is very difficult to do," OPEC secretary general Abdalla El-Badri said in a press conference following the meeting. OPEC had abandoned an output target of 30 million barrels per day (bpd) in December. At present, OPEC crude oil production is about 32.4 million bpd, out of a total global production of 96.2 million bpd.
OPEC is a 13-nation would-be cartel of major oil producing nations in the Middle East, Africa and South America. However, it doesn't include several of the world's biggest producers - Russia, Canada, China and the United States among the countries that are not members.
In the 1970s, OPEC was a disciplined cartel whose members respected a quota system, which enabled it to massively influence global oil prices. In recent years, however, member countries have simply ignored production ceilings, rendering the group ineffective.
Iran seeks market share
Ahead of the meeting, Iranian oil minister Bijan Zanganeh had rejected suggestions for an OPEC-wide production cap, saying his country would rather back a return to a national quota system.
Tehran has opposed all attempts by oil producing nations to limit output to end a global supply glut and fight weak crude prices. It stayed away from an April 4 meeting between OPEC and other major producers, including Russia, that also failed to agree on a coordinated output freeze.
Arriving in Vienna on Wednesday, Zanganeh said an OPEC-wide production cap would bring "no benefit" to Iran and other producers.
"One of our main ideas is to have country quotas, but I don't think we can reach an agreement on this subject at this meeting," the minister said.
Last month, Iran exported slightly more than two million barrels of oil every day, but said it hoped to double exports in future. Iran's production has risen to 3.8 million barrels a day following the lifting of international sanctions against the country earlier this year, in the wake of a deal with the US, Russia and other global powers to limit Iran's nuclear fuel production capacity.
Priot to the meeting, several sources said Saudi Arabia and its Gulf allies would propose to set a new collective oil output ceiling in an attempt to restore OPEC's ability to push up oil prices.
"The Gulf Cooperation Council is looking for coordinated action at the meeting," a senior OPEC source had told the news agency Reuters, referring to a group combining OPEC's biggest producer Saudi Arabia, Qatar, Kuwait and the United Arab Emirates.
However, achieving any agreement between Riyadh and Tehran was bound to be a long shot, given tensions between the Sunni-led Saudi kingdom and the Shia Islamic Republic over the wars in Syria and Yemen in particular. The two countries appear to be engaged in a bitter struggle for regional hegemony.
While it's true that all members of OPEC including Iran would benefit from a rise in oil prices, its opposition to any production cap that might lead to higher prices may be motivated by geopolitical considerations. Iran has a much more diversified economy than Saudi Arabia, which is almost entirely dependent on oil revenues. Iranian leaders may believe that a sustained period of low oil prices will hurt their Saudi rivals more than it will hurt themselves.
Oil price gambles
At its previous meeting in December 2015, OPEC failed to set any production policy, effectively allowing its 13 members to pump at will. As a result, crude prices crashed to $27 (24 euros) per barrel in January - their lowest in over a decade.
Meanwhile, prices have recovered somewhat, surging briefly above $50 last week amid falling output from non-OPEC members. On the eve of the OPEC meeting, the rise softened again, with US benchmark West Texas Intermediate (WTI) for delivery in July falling 11 cents to $48.9 a barrel Thursday morning. But in London, Brent North Sea crude for August delivery rose five cents to $49.77.
BMI Research oil and gas analyst Peter Lee told the news agency AFP that prices did not move drastically owing to cautiousness. Traders were not surprised by Iran's opposition to a production cap, he said. "Iran's been consistent in their actions, so the market is pretty much priced-in here."
uhe/nz (Reuters, AFP, dpa)