OPEC set to extend oil supply cut as Iran endorses pact

OPEC and its allies look set to extend oil supply cuts this week at least until the end of 2019 as Iran joined top producers Saudi Arabia, Iraq and Russia in endorsing a policy aimed at propping up the price of crude amid a weakening global economy.

Iranian Oil Minister Bijan Zanganeh told reporters on Monday he would support prolonging output cuts by six to nine months. Tehran has in the past objected to policies put forward by arch-rival Saudi Arabia, saying Riyadh was too close to Washington.

“I have no problem with a production cut… It’s going to be an easy meeting as my stance is very clear,” Zanganeh told reporters upon arriving in Vienna.

The United States is not a member of OPEC, nor is it participating in the supply pact. Washington has demanded Riyadh pump more oil to compensate for lower exports from Iran after slapping fresh sanctions on Tehran over its nuclear programme.

OPEC and its allies led by Russia have been reducing oil output since 2017 to prevent prices from sliding amid soaring production from the United States, which has become the world’s top producer this year ahead of Russia and Saudi Arabia.

Fears about weaker global demand as a result of a US-China trade spat have added to the challenges faced by the 14-nation Organisation of the Petroleum Exporting Countries in recent months.

Russian President Vladimir Putin said on Saturday he had agreed with Saudi Arabia to extend existing output cuts of 1.2 million barrels per day, or 1.2 per cent of global demand, by six to nine months  – until December 2019 or March 2020.

Saudi Energy Minister Khalid Al Falih said the deal would most likely be extended by nine months and no deeper reductions were needed.

“It’s a rollover and it’s happening,” Falih, whose country is the de facto leader of OPEC, told reporters on Sunday.

Benchmark Brent crude has climbed more than 25 per cent since the start of 2019 to $65 per barrel. But prices could stall as a slowing global economy squeezes demand and US oil floods the market, a Reuters poll of analysts found.

Worsening geopolitical risk

The output-cutting pact expired on Sunday. OPEC meets in Vienna on Monday followed by talks with Russia and other allies, a grouping known as OPEC+, on Tuesday.

Zanganeh said he would not object to deepening the cuts but would reject a proposal to sign a new charter for cooperation with non-OPEC, led by Russia.

He expressed frustration that Putin had announced the deal at a G20 summit in Osaka before waiting for OPEC to gather in Vienna.

“The important thing to me is that OPEC remains OPEC. It has lost its authority and it’s on the verge of collapse,” Zanganeh said.

“Iran is not going to leave OPEC but I believe OPEC is going to die with these processes.”

Iran’s exports have plummeted to 0.3 million barrels per day in June from as much as 2.5 million bpd in April 2018 due to Washington’s fresh sanctions.

The sanctions are putting Iran under unprecedented pressure. Even in 2012, when the European Union joined US sanctions on Tehran, the country’s exports stood at around 1 million bpd. Oil represents the lion’s share of Iran’s budget revenues.

Washington has said it wants to change what it calls a “corrupt” regime in Tehran. Iran has denounced the sanctions as illegal and says the White House is run by “mentally retarded” people.

“Worsening tensions between the US and Iran add potential for oil price volatility that could be tricky for OPEC members to manage,” said Ann-Louise Hittle, vice president, macro oils, at consultancy Wood Mackenzie.

“Geopolitical risk means the supply outlook is tightening, offsetting the moderate weakening in oil demand growth thus far this year,” she added.