The June OPEC meeting, scheduled to take place in Vienna, Austria on Thursday June 2, is still more than a week away, but the strategic political posturing by major oil producers is already heating up.
1) Russia has announced it will not attend the June OPEC meeting.
Russia is not an OPEC member, and oil Minister Alexander Novak is trying to downplay OPEC’s significance in the oil market by reminding the public that Russian cooperation in any production freeze or cut is essential. He also criticized OPEC’s management by calling into question the organization’s recently reported production increases. “Estimations of OPEC countries significantly increasing oil production are slightly exaggerated,” he said.
OPEC reported an increase of 484,000 barrels per day in April, while Novak claimed the number was closer to 100,000. It is unlikely that Russia has better data on OPEC production than OPEC itself, but Novak’s message is clear – Russia will not stand to be ignored. On the other hand, Russian oil production has decreased from its record high in March. Perhaps Novak’s bravado is an attempt to cover for future drops in Russian production.
2) Iran announced it will not freeze oil production.
Many in the media speculated that a production freeze might be on the horizon since Iranian oil production has reportedly reached 4 million barrels a day, the level at which oil minister Bijan Namdar Zangeneh indicated his country would join the OPEC/Non-OPEC oil freeze talks. However, as I have previously discussed, Iran has no incentive to agree to freeze oil production. Last week, Iran’s Deputy Oil Minister and managing director of the National Iranian Oil Company, Rokneddin Javadi, explicitly confirmed Iran’s position. “The government has no plans for the time being to freeze or interrupt its increase in oil output and exports based on plans that are being carried out.” Perhaps Iran never intended to engage in production freeze talks in the first place.
3) Iran’s numbers don’t add up.
According to the Financial Times, Iran produced only 3.6 million barrels a day in April, not the 4 million barrels Iran claims. Javadi said Iran’s current production and its expected production increase (another 200,000 barrels per day over the summer) do not include gas condensates, an ultra-light type of oil that is a natural byproduct of natural gas production. During the sanctions regime, Iran continued to produce and export these condensates because technically they were not covered by oil sanctions.
It is important to separate gas condensate numbers from the rest of Iran’s oil production numbers. Including them would inflate notions of how well Iran’s oil industry is developing post-sanctions. Iran has continued to export about 300,000 barrels a day of gas condensates, which could account for the discrepancy between Iran’s reported production and that reported by other sources. Javadi could be fudging the numbers he reports for political reasons.
In fact, he recently resigned as managing director of the National Iranian Oil company (NIOC), reportedly over policy differences with the oil minister. Javadi may oppose the new international petroleum contracts (IPCs) that Zangeneh plans to announce in July. Some reports say he has been appointed head of Ayatollah Khamenei’s “resistance economy” oil projects. Be wary of the production numbers coming out of Iran, because they may not be what they seem.
4) Price trends may not be straight up.
Oil prices rose last week largely due to production disruptions in Libya, Nigeria, Canada, and Venezuela, and stored oil has not been utilized to alleviate a supply production drop of about 2.5 million barrels per day. Oil storage facilities are still at full capacity, which means these supply disruptions are not actually helping to resolve the global supply glut, just pausing it. In a market where almost 80 million barrels of oil are produced daily, this is a relatively small disruption. In fact, production increases from Saudi Arabia (which generally has spare capacity of 1-2 million barrels per day), Iran, and the United States could easily replace the production deficit. In other words, do not count on prices continuing to climb at the same rate they have been in May.
These are some of the issues on the minds of OPEC nations and OPEC watchers as they prepare for the June meeting. Whether these issues have been resolved (Libya), will be resolved in the near future (Nigeria, Canada), or may not be resolved for some time (Venezuela), they all can and will be fixed eventually.
Stay tuned or more analysis previewing the goals of major players as they enter the meeting.