Vienna (AFP) – OPEC energy ministers scrambled to hammer out a compromise on oil output policy Friday as they debated a Saudi proposal to ramp up production that has encountered fierce resistance from sanctions-hit Iran.
At stake is the fate of an 18-month-old supply-cut deal between members of the Organization of the Petroleum Exporting Countries and allied countries that has cleared a global oil glut and lifted crude prices.
Asked whether he thought the 14 OPEC ministers gathering in Vienna would reach a unanimous agreement on whether and how to amend the landmark deal, Iraqi Oil Minister Jabbar al-Luaibi replied: “No.”
As tensions mounted, the Iranian and Saudi ministers huddled for bilateral talks on Friday morning, holding up the start of the closely watched OPEC meeting.
Saudi Arabia, backed by non-member Russia, is arguing that the time has come to raise production in order to meet growing demand and appease major consumer countries like the United States, India and China who have complained about the spike in prices.
But regional rival Iran has bristled at the thought of lifting the output ceiling at a time when its oil industry is facing renewed sanctions over US President Donald Trump’s decision to quit the international nuclear deal with Tehran.
“We’re hoping to come out of this with a reasonable decision,” Saudi Energy Minister Khalid al-Falih told reporters moments before the OPEC meeting opened.
“I don’t want to talk about contingencies… we are assuming the sound of reason will ultimately prevail.”
Saudi Arabia and Russia on Thursday used a pre-OPEC meeting in the Austrian capital to float a proposal of bringing an extra one million barrels each day to the market.
Iran’s Oil Minister Bijan Namdar Zanganeh walked out that meeting, telling reporters he did not think an agreement could be reached.
His position appeared unchanged on Friday.
“We are going to change this structure (of one million bpd),” he said as the meeting kicked off.
Venezuela, in the throes of an economic crisis, is also opposed to easing the cartel’s output curbs, as are several other countries, including Iraq and Nigeria, who would struggle to immediately increase production.
But Saudi Arabia has the powerful backing of Russia, which is facing mounting calls from domestic oil firms to end the cutbacks so they can cash in on the higher oil prices.
Russian Energy Minister Alexander Novak, who attended Thursday’s technical meeting, said it was “very important” not to allow the oil market to “overheat”.
The Saudi and Russian output hike proposal also needs to be approved by non-OPEC ministers, who are meeting in Vienna on Saturday.
– Politically charged –
The 24 nations in the supply-cat pact, known as OPEC+, agreed in late 2016 to trim production by 1.8 million barrels a day but they have actually been keeping some 2.8 million barrels per day off the market.
Much of the shortfall has come from Venezuela, where an economic crisis has savaged petroleum production.
Output has also plummeted in Libya, where fighting between rival factions has damaged key oil infrastructure.
Given the production restraints in some countries, the one million barrels per day proposal would in reality end up adding several hundred thousand barrels to the market.
But it remains to be seen what kind of compromise could emerge, given Iran’s deep aversion to any attempt by OPEC allies to offset its expected production losses as a result of the impending US sanctions.
Meanwhile Riyadh, which cheered Washington’s exit from the Iranian nuclear deal, is under pressure from its US ally to open the spigots as Trump hopes for lower pump prices ahead of November’s mid-term elections.
Iran’s Zanganeh has accused Trump of trying to politicise OPEC and said it was US sanctions on Iran and Venezuela that had helped push up prices.
OPEC operates on the principle of consensus, and ministers are keen to avoid a damaging rift between key members that could undermine the bloc’s credibility.
Analysts have called this week’s OPEC talks the most fractious and politically charged in years.
Global oil prices rose Friday by over one percent on the day as analysts expected any OPEC+ crude output increase to fall short of the original target.
“Investor sentiments are shifting and they’re no longer expecting a 1 million barrel a day rate hike,” Benjamin Lu, a commodities analyst at Phillip Securities Singapore, told AFP.
“In our perspective, we’re going to see a gradual, progressive increase,” he said.