TEHRAN (Shana) -- Two key ministerial meetings of the Organization of the Petroleum Exporting Countries convened in 2018 were the among the most significant oil developments of last year.
In 2018, when US President Donald Trump pulled out of the 2015 nuclear deal with Iran and caused headaches for OPEC through his tweets, Iran managed to make acceptable achievements.
Here we briefly review how Iran’s representatives to OPEC managed to make developments play in Iran’s favor.
- The Declaration of Cooperation, signed by OPEC and non-OPEC allies, took effect in January 2017. It achieved its objectives in March and April the following year. The excess oil stocks, besides the five-year average, in the Organization for Economic Cooperation and Development (OECD) – an indicator of oil market imbalance – dropped to zero (down 326 million barrels), OPEC basket oil price rallied from $52.5 a barrel in January 2017 to $63.17 a barrel in April 2018 and call on OPEC crude oil increased on par with growing global oil demand. The monthly oil market review by the International Energy Agency (IEA) in April 2018 proved the accuracy of all such developments. All these positive developments were outcome of OPEC and non-OPEC oil producers' commitments in the Declaration of Cooperation signed in December 2016 for cutting their output 1.8 mb/d to shore up oil prices. The agreement came into effect in January 2017, restoring stability to the market. Nonetheless, this successful trend and acquisition of maximum interests by OPEC and volunteer non-OPEC producers was disrupted by President Trump’s meddlesome tweets which were endorsed by some OPEC member states.
- It was May 8, 2018 when President Trump pulled the US out of the Joint Comprehensive Plan of Action (JCPOA), as is formally known Iran’s historic nuclear deal with six world powers. Consequently, he began re-imposing sanctions lifted earlier under the deal. Trump had said he planned to impose the toughest ever economic sanctions on Iran. Trump’s anti-Iran stance and policy drew condemnations worldwide; however, some OPEC producers, showing support for the US decision and hoping to drive Iran out of the market, supplied extra barrels of oil on the market, which had earlier been removed and had brought stability to the market under OPEC-non-OPEC agreement. The extra barrels of oil undid all achievements of the 2016 agreement. In the run-up to such events, Iran had notified OPEC Secretariat in advance in words and in deeds. Iran’s Minister of Petroleum Bijan Zangeneh wrote six key letters to the OPEC Secretary General Mohammad Sanusi Barkindo and OPEC rotating President Suhail al-Mazrouei, indicating Iran’s oil market forecasts.
- Forty-four days after the US pulled out of the JCPOA, the 174th OPEC Conference was held (June 22, 2018) at a time Trump called in his tweets for OPEC oil production hike, while the oil market had reached stability in supply and demand. Trump formulated his demand in the hope of finding replacement to Iran’s oil which he expected to be eliminated due to the oil sanctions he would place back on Iran in August. As President Trump called for OPEC output hike, OPEC Secretariat’s estimates of oil supply and demand changed, contrary to other reliable sources like IEA. OPEC Secretariat presented a strange image of oil supply shortage and growing demand for OPEC crude oil for the third and fourth quarters of the year. The Iranian delegation dismissed the estimates on the ground that the oil market was not undersupplied. Iranian delegates had expressed their opposition during the Economic Commission Board (ECB) meeting in June and in the Joint Technical Meetings (JTC) held earlier. OPEC, later on when oil prices had dropped by $20 a barrel acknowledged that Iran was right in its estimates of oil market stability.
- One day before OPEC 174th ministerial meeting in Vienna, Minister Zangeneh asked: “Please someone explain me why we should raise production in a balanced market?” The Iranian minister knew quite well that there was no shortage in the oil market and that OPEC Secretariat had presented an unreal image of oil shortage in the market due to increased production by Saudi Arabia, the United Arab Emirates (UAE), Iraq and Kuwait. Zangeneh said firmly that Iran would veto any decision by OPEC member states to raise output by 1 mb/d. Saudi Arabia, UAE and non-OPEC Russia favored oil output hike, but the final outcome was exactly opposite. The OPEC 174th ministerial meeting called on the member states to make their best for full compliance with the production ceiling set earlier.
- Saudi Arabia and its OPEC allies had started increasing production since June. They had also taken advantage of the OPEC/non-OPEC Joint Ministerial Monitoring Committee (JMMC) to attach legitimacy to their illegal output hike under the pretext of executing OPEC decisions. That is why Iran’s Zangeneh addressed a letter to the OPEC rotating president in August, warning that the JMMC was not authorized to and should not readjust any extra production between OPEC and non-OPEC producers. “OPEC’s attempts to preserve the market stability and realize objectives… are very significant. All OPEC member states are required to follow up on and implement these decisions,” wrote Zangeneh in his letter. The letters addressed to OPEC Secretariat by Iran’s minister showed Tehran’s firmness in preserving its interests by any means at its disposal.
- Several days prior to the JMMC meeting on September 23, pro-Saudi media started spreading rumors about alleged plans for a 1 mb/d output hike by OPEC and non-OPEC partners. However, the Iranian delegation to OPEC did not stand idle and it expressed Tehran’s position in clear terms. It was noted that the oil market did not face any supply shortages and that the market was even oversupplied. Iran strongly opposed attempts by some OPEC member states to leave the organization’s share to non-OPEC oil producers. Hossein Kazempour Ardebili Iran’s governor for OPEC said OPEC’s share should not be given to non-OPEC countries. Thanks to the Iranian delegates’ legal interpretation of the decisions made by the OPEC 174th ministerial meeting, which was then endorsed by OPEC Secretariat, it was proven that the JMMC was not competent to readjust the excess production. Following this development, the issue of readjustment of excess production by OPEC and non-OPEC was put off to the December meeting.
- Increased production by some OPEC member states and Russia at a time the oil market was oversupplied significantly affected the prices. From May to October, OPEC and non-OPEC producers had increased their output by 768,000 b/d and 275,000 b/d, respectively. Saudi Arabia, UAE, Iraq and Russia had respectively lifted their output by 644,000 b/d, 384,000 b/d, 190,000 b/d and 458,000 b/d over the same period. Totally, during months following June, Saudi Arabia, UAE, Iraq and Russia had violated their quota obligations. For instance, in October OPEC plus Russia produced 1.8 mb/d of oil above their quota, 1.4 mb/d of which came from the six JMMC members (Saudi Arabia, UAE, Algeria, Kuwait, Russia and Oman). The JMMC members were supposed to monitor the proper implementation of the Declaration of Cooperation, but they themselves had violated the terms of the agreement!
- The increased oil production was not limited to Saudi Arabia, UAE, Iraq and Russia. From May to October, US crude oil production increased 1 mb/d as global prices grew. The increased oil output along with lower demand for oil due to the US-China trade war and the dollar appreciation caused OECD stocks to increase about 56 mb/d, well beyond its five-year average levels. That was a sign of new disturbance in the oil market. It would be important to keep in mind that illegal production by JMMC states was a factor impacting the oil market balance. That is while during the 175th ministerial meeting, the same nations were making every effort to engage all signatories to the Declaration of Cooperation in oil production decline. That is why Kazempour Ardebili Iran’s governor for OPEC said the nations that destabilized the market had to restore stability to it.
- Due to the new conditions and inaccurate estimates by OPEC Secretariat of oil supply and demand for the third and the fourth quarters of 2018, as well as increased oil supply by OPEC and Russia from May, the oil price slumped. It is noteworthy that ever since the implementation of OPEC-non-OPEC agreement in January 2017 up to the end of September 2018, the average price of OPEC Reference Basket (ORB) increased about $25 per barrel to reach $77. That was while from the first week of October until the closing week of November 2018, the ORB price reached $65, down $18 a barrel. That means about 72% of the price growth caused by the OPEC-non-OPEC agreement over 21 months was lost in less than two months. Of course, one should keep in mind that the US increased oil production over that period due to higher oil prices reduced call on OPEC, thereby reducing the OPEC market share. Even worse was that OECD five-year stocks exceeded the five-year average. Should OPEC continue with its current policy, OECD oil stocks would have increased about 400 million barrels by the end of 2019. Furthermore, oil prices will keep falling and OPECmarket share will drop by 900,000 b/d to reach 31.3 mb/d.
- The oil market was destabilized one month before the OPEC 175th ministerial meeting due to JMMC’s lack of prudence. Such conditions prompted Minister Zangeneh to write a strongly worded letter to OPEC President al-Mazrouei, demanding that the JMMC activities be stopped. Analysts say Zangeneh’s letter firmly called into question the very foundations of this committee. In his letter, Zangeneh said: "To our dismay we witnessed that some members attempted to redistribute over-conformity in production adjustment level among themselves, and made attempts to hand over OPEC countries' over-conformity to non-OPEC countries. I ran participated at the 18th JTC without any voting right, and [witnessed] that some members attempted to redistribute over-conformity in production adjustment level among themselves, and made attempts to hand over OPEC countries' over-conformity to non-OPEC countries. This very procedure is totally in contradiction with the monitoring task of both JMMC and JTC, and indicates misinterpretation by the JMMC over its mandate, as well as disregarding the decision of the 174th Meeting of the OPEC Conference. Given the performance of the JMMC and JTC over recent months, we have regrettably noticed that these two committees have deviated from their initial objectives for which they were established, and some OPEC members of these two committees have clearly taken side with the US in imposing its unilateral and unlawful sanctions against Islamic Republic of Iran, and are turning these two committees into political tools in support of the US policies against Islamic Republic of Iran.” Amid such conditions, OPEC and non-OPEC partners returned to the negotiating table.
- The 15 OPEC member states stepped into the 175th ministerial meeting against the backdrop of a $30 fall in oil prices over three months. However, Iran’s position was crystal clear from the very beginning: “As long as Iran is under sanctions it will not join any agreement”. Iran had regularly favored OPEC production cut, but it refused to cut its own output during the November meeting. However, many sought to engage Iran in this agreement. For instance, it was suggested that the reference for Iran’s oil production cut, unlike fellow OPEC states, not be October 2018 and the April-May average be set as the basis. Or it was suggested that the basis for Iran’s oil production decline be set the maximum output after the OPEC-non-OPEC Declaration of Cooperation. Iran was even asked to symbolically join the production cut agreement. In a bid ratchet up pressure on Iran, it was said that since Iran and Russia were equally facing sanctions Russia would not join an agreement from which Iran would be exempted. Russia’s Minister of Energy Alexander Novak was totally unaware of such pressure and he declined to confirm such news after his meeting with Zangeneh ended inconclusively. The definite outcome was deadlock.
- The tactic chosen by Saudi Arabia and UAE for engaging Iran in a production cut agreement did not come to fruition on the first day of OPEC meeting which was extended into a second day. The ECB had suggested that OPEC cut its output by either 1.3 mb/d or 2.1 mb/d. In the end, OPEC and non-OPEC participating countries in the DoC agreed on 1.2 mb/d cut. OPEC had to account for 800,000 b/d while Iran, Venezuela and Libya were granted exemption. That constituted a big victory for Iran. Iran’s exemption from production cut meant maintaining its December 2016 production ceiling (3.797 mb/d) and not losing its oil market share.
- OPEC’s tough year in 2018 ended with some OPEC states violating the decisions of the Organization and their alignment with the US to harm fellow members. Two OPEC members teamed up with US to strike a heavy blow at minor producers and inflicted heavy financial harms on them. Under such tough conditions, Iran kept its flag flying high and the Iranian delegation struggled for maximum benefits for the country, while it managed to keep OPEC, comprising Third World nations, afloat. What conditions Iran would have had the country not opposed the 1mb/d output cut suggested at OPEC in June? Undoubtedly, Iran is facing many buts and ifs in the current year. Extension of US sanctions waivers to the traditional buyers of Iran’s crude oil is one of those challenges. However, Iran is expected to go through a new critical period as it did during the second half of last year. The year 2019 started with OPEC basket price at about $52 a barrel.
Courtesy of Iran Petroleum
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