London — For all the geopolitical acrimony between the two countries, on the matter of OPEC oil production policy Saudi Arabia and Iran would appear aligned.
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Slumping prices and persistent builds in US oil inventories have Saudi Arabia calling for an extension to OPEC's supply curbs, no doubt appeasing Iran, which has in no uncertain terms warned other producers to steer clear of its sanctions-encumbered market share.
But a dispute over OPEC's meeting date threatens to undo any bonhomie, with just two and a half weeks left before the OPEC/non-OPEC 1.2 million b/d production cut accord is due to expire at month's end.
Originally scheduled for June 25-26, OPEC's semi-annual gathering in Vienna could be moved to the week after, to accommodate a request by key non-OPEC ally Russia, which has cited a potential conflict with the G20 summit on June 28-29 in Japan.
Most of OPEC appears on board with the date shift, but Iran has said it is unavailable for an early-July meeting and that any changes must be unanimously agreed, according to several delegates.
Russian energy minister Alexander Novak is expected to travel to Iran next week to take part in a Russian-Iranian intergovernmental commission, where he may hope to settle the scheduling spat.
One option being considered is to hold OPEC's meeting as intended on June 25, with another meeting July 3 or 4 involving Russia and the nine other non-OPEC partners.
Any delay "could complicate messaging and potentially create some additional volatility in oil markets," said Joe McMonigle, an analyst with Hedgeye Capital.
BEARING THE BURDEN
Even with a rollover of the cuts widely expected, the stage is set for a potentially tense summer for OPEC, with many analysts forecasting a tight market ahead and Russia already agitating for a loosening of its production quota.
With Saudi energy minister Khalid al-Falih pledging to fill any supply gap caused by US sanctions on Iran, the market will be closely watching Saudi production and exports in the coming months. Iranian production, which averaged 2.45 million b/d in May according to the latest S&P Global Platts survey of OPEC output, is expected to fall significantly as the US ratchets up its enforcement of sanctions.
Additional supply risks in Venezuela and Libya, along with US pressure to keep oil prices low, will compete against a wobbly global demand outlook depressed by US-China trade friction in determining Saudi Arabia's course of action.
For now, Saudi Arabia, the world's largest crude exporter, is content to maintain or even deepen its own cuts, Falih has said, as it still sees a well-supplied market. The kingdom pumped 9.70 million b/d in May, according to the Platts OPEC survey, giving it some 610,000 b/d of cushion to raise production and still comply with its quota of 10.31 million b/d under the OPEC/non-OPEC agreement.
"In our view, the Saudi oil minister seems comfortable playing the role of the global oil central banker and bearing the burden of adjustment for now," analysts with RBC Capital Markets said in a recent note.
FRAGILITY IN HOSTILITY
Iran, for its part, views the market situation differently.
Oil minister Bijan Zanganeh has said current supply balances were "worrisome" and would deteriorate due to the US sanctions.
"The market is unstable and vulnerable," he told Iran's parliament news service Icana.ir. "It will worsen as Iran's presence in the market shrinks."
Though he said Iran would not be quitting OPEC, as some observers had speculated following Qatar's abrupt exit in December, Zanganeh again accused Iran's rivals of allowing the organization's agenda to be thwarted by US interests. The White House has trumpeted reassurances it has received from Saudi Arabia and the UAE to prevent any oil supply squeeze.
"Two regional countries in this organization are hostile to us," Zanganeh said. "They have turned OPEC to a political organization. They use oil as a weapon in the global market and the world against us."
Saudi Arabia, in turn, has blamed Iran-backed Houthi rebels for a drone attack last month on a key oil pipeline, while US officials have likewise implicated Iran for suspected sabotage of four tankers off the eastern UAE port of Fujairah.
The oil market has shrugged off the heightened geopolitical tensions, focusing instead on disappointing oil demand data that suggests a slowdown in global economic growth.
Front-month ICE Brent futures have fallen almost 20% in price in the last eight weeks to trade at $60.64/b at 1227 GMT.
But Giovanni Staunovo, an analyst with investment bank UBS, said he believes market sentiment will turn in short order and that supply risks will once again come to the forefront.
"High compliance to OPEC's oil production deal and lower on-land oil inventories over the coming months should lead to supply-and-demand deficits in the second and third quarters, putting renewed upward pressure on prices," he said.
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