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Iran is stirring up potential OPEC trouble by reopening the debate over when to signal an end to the group's current production cut deal with Russia.

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There are good arguments for it to end soon if crude bursts through the $70/b level, but Tehran's dilapidated fields are in no shape to win a new market share battle.

Iranian oil minister Bijan Zanganeh argues higher prices are reviving US shale at OPEC's expense. In a recent interview with The Wall Street Journal, he said the 14-member group may agree at its next meeting June 22 on a strategy for ending its cuts starting in 2019.

Zanganeh insists Saudi is onboard with the idea, but his message contradicts recent signals of longer term cooperation between OPEC and producers outside the group led by Russia.

Although Zanganeh may have a point about shale, Iran is powerless to halt its revival. The Islamic republic can probably only pump an additional 100,000 b/d above its current output level of around 3.83 million b/d, according to the latest S&P Global Platts OPEC survey.

"I don't think Iran has the power to ruin the party," said Bassam Fattouh, director of the Oxford Institute for Energy Studies, noting that the normally hawkish country has not voiced concern about the impact of higher prices on supply and demand in the past. "Maybe it is an effort to present itself as a reasonable producer given that it has no real influence on market dynamics."

Nevertheless, Zanganeh's remarks were enough to spook traders. Brent futures fell more than $1/b early Monday to approach $64/b before recovering later in the day.

The International Energy Agency, in its medium-term oil market forecast released last week, is even less optimistic about Iran's oil industry.

The Paris-based agency estimates Iran could sustain a crude production level of 3.85 million b/d in 2018 and 3.90 million b/d in 2019. Incremental gains, but hardly the heft to undo the cuts by Saudi Arabia alone.

Since OPEC and 10 non-OPEC countries led by Russia agreed in December 2016 to implement supply cuts of 1.8 million b/d to help rebalance the market and support prices, US shale oil output has surged from 6.52 million b/d to 7.9 million b/d in December 2017 - or almost 1.4 million b/d -- the US Energy Information Administration has estimated.

OPEC as a whole is 340,000 b/d below its notional ceiling of about 32.73 million b/d, when every country's quota under its production cut agreement is added up, according to the latest Platts OPEC survey.

The vast majority of OPEC's spare capacity is held by Saudi Arabia and its Gulf allies, so as long as that core membership of the bloc along with Russia maintain their commitment to output restraint, Iran may be grasping at straws. Venezuela's continued decline also undermines Zanganeh's position.


Several OPEC delegates and officials were surprised by Zanganeh's comments. They indicated no discussions on how and when to begin easing up on the cuts have taken place. They stressed the deal's expiry at the end of 2018 was still more than nine and a half months away.

"It is still early to talk about an exit," said one OPEC delegate who spoke on the condition of anonymity. "We need to have more visibility on the market before deciding to discuss this important issue."

Another OPEC source said he was "not aware of such talks." Another said "no one is talking about an exit."

Saudi Energy Minister Khalid al-Falih has repeated that the deal will run its course. Officials from the kingdom have reportedly targeted an oil price of at least $70/b to pave the way for a smooth public listing of its state oil company Aramco.

"If we have to err by overbalancing the market, then so be itrather than quitting too early and realizing we were basing [our decision] on unreliable information," Falih said last month.

Iran's oil ministry could not be reached for comment on Zanganeh's remarks, and Saudi officials did not immediately respond to requests for comment.

Beyond US shale, Iran may have geopolitical motives for spoiling Saudi's oil strategy. Tehran is fighting a proxy war against the kingdom in Yemen.

"A price of $60/b might thwart Saudi efforts to list Aramco IPO on key financial markets," said Ehsan Ul-Haq, a veteran OPEC watcher and director of crude and refined products at consultancy Resource Economist. "There are already doubts about an IPO listing in 2018, while some analysts believe that it might only be offered on domestic exchanges. If oil prices fail to recover further, it might not happen at all."

The next opportunity for OPEC and its partners in the production cut agreement to discuss policy comes next week when a six-country technical committee overseeing the deal meets to discuss market conditions. Iran isn't part of the committee. --Herman Wang,

--Edited by Jonathan Fox,