EMEA News
Oil Prices Drop as Iran Does About Face and Declares Production Increase By Year End
Yet another sign that the upcoming Organization of the Petroleum Exporting Countries freeze talks are doomed to fail is an Iranian deputy minister stating this week that the Islamic republic plans to boost output by 200,000 barrels per day (bpd) by the end of this year, presumably pushing total output beyond the 4 million bpd it was producing prior to the imposition of Western sanctions.
The news caused oil prices to fall by over 1 percent on Tuesday, with Brent settling at $48.37 and West Texas Intermediary settling at $46.35.
Just a day ago, Julian Lee, oil strategist for Bloomberg First word, stated that Iran's output would continue until it reached 4 million bpd by the end of next month, "And if its production reaches a point where it can't be raised further without significant investment and a long lead-time, it might, just might, agree to a freeze to call the Saudis' bluff."
Some observers also read a lot into a remark made last week by Bijan Namdar Zanganeh, oil minister for Iran, who said his country will participate in the freeze talks: Bob Yawger, director of the futures division at Mizuho Securities USA Inc., declared, "The news about the Iranian oil minister heading to Algiers is bullish; this increases the likelihood of an agreement to freeze production."
Following news of Iran's latest apparent about-face, Yawger stated the obvious by remarking that another 200,000 bpd increase is a "double whammy" because it heralds an increase in global production - and indicates that OPEC will fail to reach a deal.
However, a stronger dollar also played an important role in Tuesday's price declines: the WSJ Dollar Index rose to a one-month high as investors continued to assess the outlook for U.S. interest-rate increases this year.
Meanwhile, analysts report that U.S. crude stockpiles rose 1.3 million barrels last week for the second straight week,corresponding with the winding down of the peak summer driving period; storage data for the week ended Aug. 26 is forthcoming from the Energy Information Administration and The American Petroleum Institute.
Michael Hewson, senior analyst for CMC Markets, summarized market activity by observing that "Oil prices are caught between concerns about over-supply and a strong dollar on the one hand and the prospect of further jawboning from OPEC members that some form of production freeze could be on the cards."
Earlier this year, when Iran declared it would attend OPEC's April 17 freeze talks but not agree to a freeze, caused Olivier Jakob, managing director at Petromatrix GmbH, to remark, "By attending the freeze meeting, and yet still being able to say they managed to escape the freeze, Iran earns some brownie points with its domestic audience."
