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Few surprises expected from OPEC despite cracks over policy — Fuel for Thought

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Few surprises expected from OPEC despite cracks over policy — Fuel for Thought

Never say never.

With this in mind, it would probably be foolish to rule out some kind of deal between OPEC and non-OPEC producers to manage supply.

But, right now, there's nothing to suggest that any such pact is even a remote possibility, and few OPEC watchers expect the oil producer group to do anything other than rubber-stamp current output policy at talks in Vienna next week.

Leading non-OPEC producer Russia has mooted a possible meeting of OPEC and non-OPEC experts on December 3 in Vienna, on the eve of the OPEC conference, and energy minister Alexander Novak has said that if there's a need for ministerial talks, Russia is ready to participate.

But don't forget that Novak has repeatedly ruled out coordinated action on supply, saying "artificial" cuts would not provide a sustainable solution to the oil glut. Russia has also said several times over the past year that it cannot easily cut or increase production because the bulk of its reserves are in regions where climate conditions are harsh.

And what about Saudi Arabia? Pumping in excess of 10 million b/d since March and having steadily increased the number of drilling rigs working in the kingdom over the past two years, Riyadh isn't showing any sign that it may be preparing for an output cut.

Earlier this week, the Saudi cabinet reiterated the kingdom's willingness to work with producers inside and outside OPEC to achieve stable markets. The subtext of this can be read as: No unilateral cuts.

So, if Russia and other key independent producers are unwilling or unable to cut production, what chance is there of an OPEC cut? A snowball's chance in hell, perhaps?

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But, of course, OPEC's Saudi-driven market share strategy isn't just about non-OPEC supply and the extent to which it has gobbled up growth in oil demand in recent years. It's about the cut-throat competition within OPEC itself for the growing markets of Asia, where Iraq has already made its mark and on which Iran will target the bulk of the additional 1 million b/d of crude it hopes to export within six months of the lifting of sanctions.

Iranian oil minister Bijan Zanganeh and his Venezuelan counterpart, Eulogio del Pino, grabbed the headlines earlier this week, calling for OPEC to do something to tackle the current oversupply and to make room for Iran’s planned export increase.

"I sent a letter to OPEC to consider our return to the market and manage it," Zanganeh said on the sidelines of a summit of leading gas-exporting countries in Tehran.

Venezuela's del Pino, who participated in the Tehran meeting, warned that oil prices -- which have been trading recently around $45/barrel -- could sink to to the "low-20s" if OPEC did not restrict the flow of crude to the glutted international market.

"...OPEC has to do something, and very soon," the Venezuelan minister said.

But Iran's Zanganeh all but ruled out the likelihood of OPEC action at the December 4 meeting.

"I don't believe there is a strong intention from some parts of OPEC to stabilize the market," he said. "If we subject it to cooperation and collaboration of non-OPEC producers, it means we are going to do nothing."