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Page added on November 27, 2016

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OPEC Deal Disintegrates After Iran Press Accuses Saudi Arabia Of “Reneging” On Agreement

Public Policy

On Friday, after reading the latest shift in the ever-changing, always fluid OPEC narrative, according to which Saudi Arabia now demands Iranian oil production cuts contrary to the agreement reached at the end of September in Algiers, in which Iran was granted an exemption from the upcoming supply cut negotiation in Vienna on November 30, we were confused:

This morning there is less confusion because according to Iran’s semi-official Mehr news agency, the OPEC agreement is effectively dead with Iran’s government mouthpiece reporting that “on the eve of OPEC Meeting, Saudi Arabia has officially declared a war on oil prices by releasing a tactical letter as well as applying pressure on certain OPEC members.

As the news report – which likely telegraphs the position of Iran’s oil ministry – lays out, Iran is now once again lashing out at Saudi Arabia and raising a diplomatic scandal over the terms of the November 30 OPEC meeting just days in advance, in what will likely lead to a substantial renegotiation if not outright failure of the deal.

Here are the key excerpts from the report:

On the verge of the 171st Ordinary OPEC Meeting to convene on November 30 in Vienna of Austria and at a time when the world’s major producers and exporters of crude oil are preparing to adopt one of the most historic decisions on freezing oil prices, Saudis seem to have reneged on earlier promises.

 

During the earlier informal meeting of OPEC ministers in Algeria in late September, members of the Organization of Petroleum Exporting Countries (OPEC) reached a consensus on putting a cap on production levels and the session urged participants to prepare for freezing or even reducing OPEC’s aggregate oil output to 32.5 million barrels per day by holding expert meetings and forming a common working group.

 

Over the past few weeks, several meetings at expert level were held among member states in different parts of the world and even non-OPEC states like Russia, Kazakhstan, Azerbaijan and Oman voiced readiness to stabilize or decrease their production levels.

 

Nevertheless, Saudi Arabia has questioned all agreements and negotiations on freezing oil prices by publishing a political and planned letter ahead of the forthcoming OPEC meeting.

 

Accordingly Saudi Arabia, in an official letter to OPEC, has announced that it will not take part at the lower-tier talks on Nov. 28 in Vienna ahead of the OPEC ministerial meeting on Nov. 30 since “OPEC ministers first need to agree on cutting output and inform non-member countries about their agreement.”

When news of this surprising announcement by Saudi Arabia hit on Friday, oil tumbled the most in weeks. However, if Iran is right, and if the Saudi move indicates that the preliminary Algiers framework is dead, then crude has a long way more to fall:

In time with the tactical retreat on Saudis from attending the joint meeting of OPEC and non-OPEC members on Monday, Russia has also announced that it will not participate in the session in order to make any comprehensive deal literally impossible.

Needless to say, Iran is not happy with what it sees as Saudi Arabia reneging on the terms of the origianl deal to “pressure” member states into once again accepting its demands, something that has been a key hurdle to any OPEC deal since November 2014: “apparently, under the pretext of lack of agreement among members, Saudi Arabia refuses to attend the Monday meeting, while in fact, Saudis, as OPEC’s largest oil producers plan to apply pressure on certain countries in order to dictate their policies to the member states.”

The Iranian complaint is simple: it believes it should be allowed to produce more:

In the past 12 years, Saudi Arabia and Iraq have enjoyed the lion’s share in crude production among all OPEC members to the extent that both countries, Saudi Arabia in particular, have taken over shares of other states by exploiting turbulent conditions like Iran’s oil sanctions, Libya’s internal conflicts, technical issues in Venezuela’s oil industry not to mention ongoing disputes in Nigeria.

 

According to secondary sources, Saudi Arabia’s production share in OPEC has risen from 29.1% in 2004 to 31.5% in 2016 and the figure for Iraq increased from 6.5 to 13.2 per cent in the same  period.

 

Moreover, share of the UAE rose from 7.7 to 8.8 and for Kuwait from 7.6 to 7.8 while the figure for Iran dropped from 13% in 2004 to 8.6% in the present year even though the country’s production soared following implementation of the Joint Comprehensive Plan of Action (JCPOA).

Furthermore Iran’s production concerns, explained previously, are legitimate: “The aggregate total of oil output in Saudi Arabia has reached 10.525 million barrels per day (bpd) indicating a rise of over one million bpd as compared with the year 2014. Iraq’s crude oil production also rose from 3.11 million to over 4.776 million bpd in the same timespan.   Iran’s output level, however, stands at about 3.92 million bpd still lower than pre-sanction levels which were over four million bpd.”

As a result, it all boils down to market share:

In other words, Saudi Arabia has, in one sense, seized shares of other OPEC manufacturers during the past decade and, once again though this time with a politically-motivated and non-economic plan, Saudi princes intend to wage a full-blown psychological war against Iran and a number of other OPEC members in order to prevent achieving a comprehensive agreement on reduction of oil output so that they could maintain the highest production capacity while ignoring interests of other members.

What happens next? According to Iran a full court press by Saudi media “friends” to scapegoat Iran as the offending party should the Vienna summit fail to reach a solution:

No doubt in the remaining hours before the OPEC meeting, Saudi Arabia will resort to some Western media to launch a new psychological war against Iran’s oil industry in order to virtually direct attention of market activists from its own uncapped and high output levels to countries like Iran, Iraq and other OPEC countries.

 

In the meantime, it is worth recalling that due to the sharp decline in global oil prices from $100 per barrel to lower than $50, any decline in oil market will undoubtedly bring about the greatest loss to Saudis, with a production of over 10.6 million bpd, than it would do to Iran who produces less than four million bpd.

What makes matters worse for Saudi Arabia is that Iran is now confident it can pursue its oil strategy on its own, and does not need either OPEC or Saudi Arabia to further its interests:

Despite all measures taken by Saudis, Iran has reached a record high in oil sales by deploying 2.442 million barrels of oil per day to global markets, marking anunprecedented figure in the past two decades. Moreover, Iran has recently managed to find a place in emerging markets like Poland, Hungary as well as some states in the Eastern Bloc of Europe.

 

Also in Asia, Iran has taken  over the place of Saudi Arabia turning into the largest supplier of crude oil to India and statistics reveal that in October, Iran shipped 789 thousand barrels of crude to the Asian state remaining ahead of Saudis who exported 697 thousand barrels in the same time preiod. 

 

The question remains whether Saudi Arabia will manage to attain its political objectives in the oil market by waging a new oil war on the verge of the OPEC meeting in Austria in order to postpone the plan to freeze OPEC’s oil output.

We will know the answer in three days.

Original report here

zerohedge



14 Comments on "OPEC Deal Disintegrates After Iran Press Accuses Saudi Arabia Of “Reneging” On Agreement"

  1. Bob Inget on Sun, 27th Nov 2016 4:39 pm 

    Doubtless (oil) markets will be down Monday.
    Looks like SA is ‘playing’ markets in both directions.
    There is no way SA can float their
    ARAMCO stock offer with oil losing half it’s value.
    That old joke, “we make it up with volume’ has real blood all over it.

    $60 by January.

  2. rockman on Sun, 27th Nov 2016 8:16 pm 

    Bob – “That old joke, “we make it up with volume’ has real blood all over it.” Actually when you dig into the dynamics at play that’s kinda what you see: as a result of lower oil prices the KSA is making up SOME of its lost revenue by increasing its volume.

  3. Momoney on Sun, 27th Nov 2016 10:38 pm 

    Saudi Arabia. Is worst of the worst. A bunch of big belly big nose , ugly incompetent who control and own a whole country. What I know about Iranians: the are smart and cleaver. So I already know who is gonna win this war.

  4. makati1 on Sun, 27th Nov 2016 11:10 pm 

    “That’s the problem with the industry statistical estimates of “reserves.” These reserves are there, probably, but it takes money (and a lot of it) to find them, extract them, and process them. And it is not just a question of money, it takes material resources to extract minerals: drills, trucks, rigs, and every sort of equipment, including transportation and, of course, people able to use all of it. These are things that cannot simply be printed or obtained by magic financial tricks such as “quantitative easing”.

    Mineral resources are nothing like a pie that you can eat until you have some of it. They are more like Tiffany’s jewelry that you may get only if you have the money to pay for it. And the price of any commodity is directly related to its cost. It costs money to produce anything and nothing is produced if it can’t return a profit when it is sold on the market. So, in the case of minerals, extraction costs keep increasing because, of course, we extract the cheapest resources first. At some moment, we may find that we cannot afford anymore to pay for these costs. And when something costs more than what you can afford, you may as well say that you “ran out” of it, no matter what you read in terms of reserves that should exist somewhere underground. The mineral pie is shrinking and most of what’s left is in the sky.”

    http://cassandralegacy.blogspot.jp/2016/11/tiffanys-fallacy-mineral-pie-is.html

    Do you understand this, Boat? LOL

  5. Truth Has A Liberal Bias on Sun, 27th Nov 2016 11:51 pm 

    Well first off this is from zerohedge so it’s best to confirm the story because zerohefge is often just publishing bullshit rumours and fake news. Secondly OPEC isn’t a cartel and hasn’t been for a longtime so they should just stop pretending. Thirdly the house of Saud is one of the worst crime families on the planet and the quicker those assholes are hanging from tank barrels the better. I hope Iran kicks the living shit out of them. I wouldn’t lose any sleep if Iran attached Israel with a chemical weapon blitzkreig and killed all the Israelis too while they were at it.

  6. joe on Mon, 28th Nov 2016 12:47 am 

    Yeah, stupid like a fox as ever. They are trying to make a profit. They have to keep people guessing. If they say theres no deal, then you bet there will be one, because otherwise they would cancel the OPEC metting. This article doesnt say the opec deal is dead, it only says it wants and opec cut deal in place before it goes to non-opec, that makes sense because they dont want non-opec to have any leverage over the opec deal. In the end its not important. The keystone pipeline will be build and trump tax cuts will mean plenty of domestic oil for the worlds biggest oil consumer, the glut is going nowhere, oil is in trouble.

  7. GregT on Mon, 28th Nov 2016 1:00 am 

    How about shutting down the production that caused ‘The Glut ™’ in the first place? After all, much of it may have been profitable at $100+/bbl, but it certainly is not at ~$50/bbl.

  8. makati1 on Mon, 28th Nov 2016 1:44 am 

    joe, maybe you drank too much of that government Koolaid over the holidays?

    There will never be a lasting ‘deal’ out of the ME or OPEC. they are all desperate for every barrel they can export. I don’t bother to read such bullshit articles as they are a waste of time. But they do keep their idiot/fool investors from jumping ship and taking it all down with them. It is interesting, watching a whole industry collapse and die, soon to be followed by most of the nations of the world that built their lifestyle on: “More, more, more!”

    Trump is going to do shit, just like his predecessors. The U$ is dying. No one is going to be able to change that. It was built on a cheap, plentiful energy supply lasting forever and that ended in 1970. The U$ has been on it’s death bed in the I.C.U. ever since, and Mother Nature is about to pull the plug on the whole homo sapiens experiment as Ap keeps showing us.

    Enjoy it while it lasts. The world we grew up in is disappearing faster and faster everyday and the future is likely to be mean, brutish and short. Not a place we would chose to be, IF we had a choice. But we do not. The only choice is between: “Buckle Up!” or “Duck and Cover!”

  9. makati1 on Mon, 28th Nov 2016 1:55 am 

    Truth, is the only “truth” that which YOU PERSONALLY say is “truth? If you do not read a wide variety of articles from web sites around the world, how do you have any idea what “truth” is? Short answer: You don’t.

    If you do not consider maybe dozens of viewpoints on an event, how do you get a clear picture? You don’t.

    Do the police only interview one witness to a car crash or murder? No, they interview ALL witnesses for a better idea of what truly happened. Why? Because each has their own perception of the event, but together they can paint a more real picture.

    We all know that EVERY web site is here for profit. We see the ads on all of them. Some are ‘privately funded’ and must be more suspect. We also know that each has their take on the world and are promoting that idea.

    And, by now, we should ALL know that many are paid for by governments, Soros type NGOS or other sources that want to distract and/or confuse the readers. This is most prevalent in America. I am more suspicious of American based sites than those of other countries. You should be also.

  10. Davy on Mon, 28th Nov 2016 6:13 am 

    Here is a clear area the Brics have excelled at:

    “Visualizing The World’s Most ‘Unequal’ Countries”
    http://www.zerohedge.com/news/2016-11-27/visualizing-worlds-most-unequal-countries
    “Our estimates suggest that the lower half of the global population collectively owns less than 1 per cent of global wealth, while the richest 10 per cent of adults own 89 per cent of all wealth, with the top 1 per cent accounting for half of all global assets.”

  11. Outcast_Searcher on Mon, 28th Nov 2016 10:50 am 

    And yet with it near noon, Eastern US time, crude is up over a dollar.

    zerohedge should be renamed zeroright.

  12. joe on Mon, 28th Nov 2016 11:43 am 

    Mak, im just observing that the world is not growing the way it used to. Oil use/demand has plateaued and so if its cheaper to pump it down a pipeline from
    Canada who dont seek to destroy America in the same way as Qatar, Saudi and Iran, then maybe its better to do that.
    I agree, the world is fucked, ecologically, morally, intellectually, so why cooperate with wahabbi muslims that want to put women in burkas and chop of peoples heads and blow themselves up, fukc em, lets nuke em, the world is fucked anyway so lets boycott their stupid fucking oil and see em eat camel shit. Those evil cunts paid for ISIS Clinton knew that and still took their money, the whole system is fucked, it makes no difference.

  13. Boat on Mon, 28th Nov 2016 1:52 pm 

    mak,

    These reserves you claim are to expensive to use. At what price per barrel does that happen. Put numbers to your speculation. For example the US oil production is on the rise it appears at prices under $50.
    Can the world afford $70 oil? I would say yes. So is there plenty of money of money laying around in discretionary income? Think of the hundreds of billions spent on religion, entertainment, makeup etc. Plenty of money for energy. Also plenty of money for a green transient.

  14. GregT on Mon, 28th Nov 2016 3:31 pm 

    “Also plenty of money for a green transient.”

    Finally Kevin, you’ve said something that is at least partially correct.

    transient

    ˈtranSHənt,ˈtranzēənt

    adjective

    1. lasting only for a short time; impermanent.

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