Algeria, Iran Want OPEC to Reinstate Quota System as Current Strategy Begins to Take its Toll

Algeria, Iran want OPEC to reinstate a quota system for oil prices

Increasing strain on the relationships between Organization of the Petroleum Exporting Countries (OPEC) members is beginning to show following suggestions made by Algeria and Iran in an internal OPEC report seen by Reuters that call for a return of the group's quota system, which was dropped in 2011.

The suggestions are contained in 11 pages of comments from member countries on the 44-page report, which was prepared by OPEC's research team in Vienna.

Algeria wrote, "OPEC should be prepared to establish and defend a price floor, in particular, and to accept a temporary trade-off between lower market share and higher revenues."

In responding to OPEC's November 2014 decision to not cut supply, Algeria commented that "an additional element of uncertainty is represented by OPEC's behaviour."

Algeria also suggested that "it might eventually be necessary to revisit the quota system to make production management as realistic and equitable as possible."

In a similar vein, Iran wrote that OPEC's 30 million barrels per day (bpd) ceiling, which doesn't specify quotas for individual members, "has not effectively contributed to oil market stability……some of the OPEC member countries have enhanced their production rate based on their production capacity without paying attention to the production ceiling."

Iran, which intends to regain market share when sanctions against the country are lifted, added that the "OPEC production ceiling should be set for 6 or 12 months intervals proportionate to the estimated `call on OPEC' and then allocation of production for every member country could be agreed upon."

Iraq took a different tack. "OPEC member-countries should determine their own policies regarding the long term strategy by creating a model for achieving maximum revenue through a balance between market share and prices," it wrote in the report's commentary pages.

Algeria, Iran, and Iraq are said to be amongst the OPEC members suffering the most due to the drop in oil prices, which are now less than half of what they were as recently as June 2014.

OPEC sources stated that although a decision to restore the quota system will be determined by the ministers when they meet on December 4, core Gulf OPEC countries oppose the initiative.

In July, an unnamed Gulf OPEC delegate said now is not the time for OPEC to change: "Demand will be more than in the first half (of the year) although there is some uncertainty about the economy. The prices will remain around $60."