Major oil-producing countries in the Middle East seem to be heading in different directions when it comes to dealing with current depressed oil prices and overstocked crude buildups.
In a surprise turn around, Iran has announced that it is almost ready to talk with other OPEC members about limiting its oil production, pointing to the rapid recovery in the country’s export levels to near those that existed before international sanctions practically destroyed its crude market.
Hassan Rouhani’s seeming munificence could fall by the wayside, however. Oil prices have risen 65 percent from its 12-year low in January and according to some analysts, a joint action agreement by members of the Organization of Petroleum Exporting Countries may not be called for at the moment.
The Persian Gulf country will probably double its crude exports to 2 million barrels a day this month compared with sales before sanctions were lifted in January and at this pre-sanction level, Iran will feel comfortable discussing production limits with the other OPEC members—should that be necessary.
In 2011, Iran was exporting about 2 million barrels of crude daily before U.S. and European restrictions forced countries to stop buying from it. With the sanctions in place, sales were down by about half that amount. Since the constraints were removed in January, increased production and exports have returned faster than expected, with 3.5 million barrels a day of crude produced in April alone compared with about 2.8 million a year earlier. The Iranians are now saying that their oil production will reach pre-sanctions levels of 4 million b/d by June of this year.
Saudi Arabia to Increase Output
While Iran discusses plans to cut production, its neighbor and co-member of OPEC, Saudi Arabia, has been making plans for “significant growth” output in 2016 at its Shaybah oil field and is discussing ways to increase its expansion internationally. The world’s largest oil producing country is also aiming to decrease its reliance on oil sales and is focusing now on selling stock in Saudi Aramco, with the King’s son, Deputy Crown Prince Mohammed bin Salman, in charge of creating the world’s largest publically listed company.
For the moment, however, the kingdom continues to lead the OPEC members in their fight for market share against U.S. Shale drillers and the newly appointed CEO of the Saudi Aramco,( Saudi Arabian Oil Co.) and oil minister, Khalid Al-Falih, has promised to continue the policy of his predecessor, Ali al-Naimi, to maintain Saudi ‘s role unchanged in international energy markets and to strengthen the country’s “position as the world’s most reliable supplier of energy.”
According to one energy analyst, Saudi oil exports are unlikely to change in the short term. He pointed to Al-Naimi’s strategy to force out U.S. shale production as a crucial failure and cited the switch in leadership as offering opportunities for Saudi Arabia to introduce new long-term strategies for production as well as its role in OPEC.
In the U.S., shale drillers are standing pat and are showing no sign of plans to increase production any time soon. Oil-rig count was down by another seven units last week and many shale drilling companies are too busy processing their bankruptcy declarations to make any changes.
At the moment, despite warnings by major financial institutions that there is no fundamental support for higher prices at this time, and that markets are still oversupplied, market sentiment in the U.S. seems to have turned to the opinion that prices are not going to fall much lower and although they won’t reach $100 any time soon, they will continue to rise gradually.