Oil Prices Drop as Iran Refuses to Budge
Iran refuses to cut its oil production. The result is that oil prices continue to drop. On the eve of the latest summit of the Organization of the Petroleum Exporting Countries (OPEC), oil has not yet found a bottom price. As OPEC representatives met in Vienna, Austria on November 29, Iran’s oil minister, Bijan Namdar Zanganeh, warned that Iran would refuse to reduce its production.
Iran’s warning added to the atmosphere of widespread skepticism that many OPEC members already feel. Thus, oil price hikes remain as frail as a house of cards. Any excuse, however weak, can force oil prices down. Today, Iran’s oil minister forced oil prices to lose four percent. Of course, as has been the case, OPEC leaders tend to negotiate behind closed doors and at the last minute, it is always possible—if not probable—that a compromise might be reached.
Advertisement
However, Iran’s representative, at least in public, hinted that there’s no room for compromise. Iran would simply not cut oil production now. The country would stick to the agreement that OPEC reached in Algeria last September. On that occasion, the OPEC member countries agreed to establish a limit on the total daily production of between 32.5 and 33 million barrels to raise prices.
But the parties have never discussed the limits that each individual member state must apply. OPEC apparently has some stubborn members. The agreement to cut oil production, which seemed a done deal in September, remains elusive. The best that was on display during the OPEC summit was a resumption of discussions to reach a compromise, however grueling this process might be.
The divisions in OPEC remain deep. Iraq has joined Iran in calling for no cuts, but it has not made as direct a threat. Goldman Sachs sees only a 30% chance that OPEC will agree on production cuts. On that off chance, oil prices could hit $55.00 a barrel during the first half of 2017. If Vienna is a no-go, as it seems now, prices will drop. They could touch lows of $40.00 and maintain an average of $45.00 per barrel. (Source: “Goldman Sachs: Oil prices could rally above $ 50 on OPEC output cut,” FXStreet, November 29, 2016.)
