Iran’s energy minister on Monday advocated the Opec oil cartel keep its production targets unchanged at Wednesday’s meeting here in Vienna. Though many fellow oil ministers agree, coming from Iran, the statement is rather ironic. The country is among Opec’s biggest ‘quota cheats’, having raised its oil production well above the Opec ceiling it pledged to adhere to.
Masoud Mirkazemi, Iran’s energy minister, forecast an oil price of $80 a barrel this year, saying: “The idea of Islamic Republic of Iran is not to increase production and Opec should not take any decision to change production.”
His prediction was not far off today’s prices. Here is the FT’s Chris Flood on today’s crude oil price movements and the market sentiment:
In energy markets, Nymex April West Texas Intermediate lost 34 cents at $80.90 a barrel while ICE April Brent lost 36 cents at $79.03 a barrel.
Ahead of this week’s Opec meeting, traders played down the prospect of any supply changes by the oil producers’ group. Instead, the cartel of oil-producing countries is expected to reiterate a call for greater compliance with existing production quotas by its members.
The only question this week – unless there are surprises – seems to be whether Opec will ‘officialise’ its cheating, by pushing up quotas to current production levels.
Such a move would make sense, given that the cheaters’ extra oil does not appear to have overwhelmed the market and prices remain at the upper end of Opec’s preferred range of $70-80 a barrel.
But doing so would benefit the cheaters at the detriment of those countries, particularly Saudi Arabia, the UAE and Kuwait, that have remained relatively more compliant.
Here is a breakdown (in per cent) of the level of compliance to their own individual output quota of the 11 Opec members that are part of the system (Iraq is exempt because of its stunted oil sector):
Saudi Arabia: 87
In total, Opec in December 2008 pledged to cut 4.2m barrels a day from the market, keeping its production to no more than 24.84m barrels a day. The group’s current compliance is little more than 50 per cent, down from a high of 80 per cent.
Despite all the cheating, Opec is sitting in a comfortable position, with many analysts and traders seeing market conditions improving as demand, especially from China, is expected to be particularly strong.
The International Energy Agency, the rich countries’ watchdog, this month increased its forecast for global demand in 2010. It pointed out that its assessment was underpinned by “astonishing” growth of 28 per cent in China and the gradual exit of developed economies from the grip of recession.
The IEA now expects the world to need 86.6m barrels of oil each day, 100,000 b/d more than it had expected last month, and a 1.8 per cent increase over 2009 levels.
That surely makes life easier for Opec. But will it lessen the dangers of discord between the cheats and those adhering more closely to their pledges?