Due To Iran Factor, No Decision on Output Cap Predicted From OPEC’s Vienna Summit

Organization of Petroleum Exporting Countries (OPEC) is likely to consider an output cap during its forthcoming meeting in Vienna scheduled to take place on June 2. Through the oil prices have increased a little in recent days but still remain too low for the comfort of the member countries. OPEC has imposed production caps to drive prices higher in previous instances. But this time, a unilateral decision on tackling the situation seems to be very unlikely.

Oil prices have started to decline further after publication of a study report on surprising US crude inventories. Meanwhile, the Iranian oil minister has called for adopting member country’s individual production quota instead of for the group in total. The radical but logical call has apparently worked in settling oil prices at a level of $50 per barrel, reports Reuters. However, Iran has retreated from its proposal later on.

Revenue generated from exporting oil appears to be the major source of income for most of the OPEC member countries. The fiscal adjustment of the oil exporting countries in the Middle East and North Africa due to oil price shock is unprecedented, observes IMF in a report published in April. The OPEC member countries have witnessed a revenue fall of $390 billion (£266 billion) during the last year which is equivalent to 17.5% of their total GDPs, according to a report published in BBC.

OPEC is going to continue its policy of diminishing rivals through flourishing the oil market since the price fall related scenario justifies the group’s action, according to a survey conducted by Bloomberg. Saudi Arabia is expected to utilize the forthcoming meeting to repair relationships with fellow member countries.

Relationships among the OPEC members have turned to bitter side following failure to reach a decision over output cap in Doha during April. Saudi Energy Minister Khalid Al-Falih’s recent confirmation over controlled oil supply in the markets justifies the Bloomberg report.    

Oil prices have tumbled during 2014 and 2015 following a global over supply and now are getting corrected, comments Suhail Al Mazrouei, Oil Minister for the UAE on June 1 upon his arrival in Vienna. He has also predicted for fair oil prices determined by the markets. Emmanuel Ibe Kachikwu, Nigeria’s petroleum resources minister has also echoed Mazrouei.

Cheaper oil prices have mounted immense pressure upon the US shale oil producers. Many US shale companies have already left the industry or have adopted measures to cut output. To drive them out, OPEC has over supplied the market while incurring huge loss due to historic low oil prices.

OPEC has succeeded in its strategy to control the market. So the group’s members have been expecting for a decision on reduced production. But Iran has announced continuing to increase output and just due to this factor, analyzers don’t predict for a unilateral decision on output cap from the scheduled OPEC summit.