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OPEC coalition agrees 1.2 million b/d cuts deal as Iran secures exemption

Saudi energy minister, US State Department official meet on Iran sanctions

Vienna —

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Saudi energy minister Khalid al-Falih met Wednesday in Vienna with a top US State Department official on Iran sanctions, a day before OPEC gathers to decide on its 2019 production policy.

Saudi Arabia boosted its crude production to an all-time high 11.02 million b/d in November, according to the latest S&P Global Platts OPEC survey -- a more than 1 million b/d rise since May, as the US pressured the kingdom to pump more crude to keep prices low ahead of the sanctions.

The US then issued waivers to eight countries to continue purchasing Iranian crude, tanking prices and leading to a fear of an oversupplied market that OPEC is now struggling to ward off in fraught negotiations over quotas and output cuts.

OPEC officials have said they were blindsided and wrong-footed by the waivers.

The meeting between Falih and Brian Hook, the US State Department's special representative for Iran, may have been scheduled to clear the air and exchange views on how Saudi Arabia might adjust its production levels to account for anticipated Iranian supply losses.

The State Department confirmed that Hook "met briefly" with Falih in Vienna, but declined to give any other details. Saudi officials did not respond to requests for comment.

Iranian oil minister Bijan Zanganeh called the meeting between the US and Saudi officials "unprofessional, interfering and immature."

"If Mr. Hook has come to apply for the US to join OPEC, the request can be examined," he said. "OPEC is an independent organization, and not an affiliation of the US Energy Department to take orders from Washington."

Iran's production plunged to 2.98 million b/d in November, according to the Platts survey, the first time it has been below 3 million b/d since January 2016, when the sanctions were suspended under the nuclear deal from which US President Donald Trump has now withdrawn.

But with the waivers, many analysts expect Iranian output to rebound somewhat in the next few months.

Iranian oil shipments fell to around 1.25 million b/d in November -- down about 1.12 million b/d since May -- as US sanctions have deterred buyers, according to a Platts analysis of data from shipping sources and provisional tanker tracking data.

Trump has said the US aims to enforce the sanctions to eventually get the shipments down to zero.

A US government official who spoke on condition of anonymity confirmed Tuesday that importers in the eight countries with "significant reduction exemptions" must complete all transactions before May 5.

"All of the transactions need to be completed during the period," she said. "If someone takes delivery or pays for Iranian crude oil when they do not have an active SRE, that transaction would be sanctionable."

The official declined to say whether the US would consider additional six-month exemptions covering May-November 2019. She also declined to name the three countries that the State Department previously said would end imports by the end of this year.

Asked about Asian refiners' difficulty restarting shipments, the US official said the point of the exemptions is to "moderate the impact on global oil markets of a sudden dislocation of all of Iran's 2.5 million b/d of production."

"If importers decide, for whatever reason, that they would prefer to diversify away from Iran more rapidly than the SRE would permit them to do, we think that is a good thing," the US official said. "Because our preference is all importers go to zero as quickly as possible."

Asked if the drop in oil prices has made things easier for sanctions enforcement, the official said: "You would have to check with the importers on that, but one would assume, yes."

--Staff, newsdesk@spglobal.com

--Edited by Valarie Jackson, valarie.jackson@spglobal.com