Last week ended with an unexpected event which cancelled any prospects of a present oil output reduction. On Sunday, old tensions between Saudi Arabia and Iran heated up again, ruining any results of a binding oil output deal (it would have been the first one in 15 years) between the OPEC (Organization of Petroleum Exporting Countries) and non-OPEC members. This will undoubtedly prompt a new fall in the price of crude.
The city of Doha, Qatar’s capital, supposed to host yesterday morning a quick important meeting to seal the deal on the output treaty. 18 OPEC and non-OPEC producers including Russia gathered to freeze the oil output at January’s level for the next 6 months – until October 2016. The meeting was postponed due to the fact that Iran did not comply with Saudi Arabia’s demand that all OPEC countries should agree on the measures, as per internal OPEC sources. Riyadh, earlier in the debate, proposed to exclude Iran at all from the talks mentioning that Teheran will continue to refuse the output freeze no matter what because of the lifted sanctions in January. Seeking to temper the conflict, the oil ministers of Doha met with the Qatari emir – Sheikh Tamim bin Hamad al-Thani, due to his key role in the promotion of output stability in the last month. A major industry oil figure said that the challenge now will be to create a draft for a deal that will exclude Iran, will satisfy the Saudis and will, most importantly, not upset Russia.
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If a deal is not struck shortly, the battle for market shares will only intensify, driving oil prices even lower. The lack of a treaty will go past countries like Iran of Saudi Arabia, and the price drop will ultimately hit North America in its core production. From a conspiratorial perspective, maybe this is what the Saudis are looking for.
The stance Saudi Arabia took when Iran refused to sign the output freeze treaty was tough, especially when Deputy Crown Prince Mohammed bin Salman declared to Bloomberg that its kingdom can rush up the production, and it would only restrain the output if Iran agrees to the freeze. On the other side, Iran’s oil minister Bijan Zanganeh stated that OPEC and non-OPEC members should come around and accept Iran’s return to the oil market, saying that the country cannot freeze its output because it will not benefit from the sanctions lift.
The International Energy Agency said on Thursday that, although this output freeze may appear as a big step for oil producers, globally there will only be a limited impact on the prices unlikely to rebalance until 2017.