Iran Raising Output Despite Support for Oil Market Stabilization

Seyed Mohsen Ghamsari, director for international affairs for the National Iranian Oil Company

The latest in the long line of contradictions that has characterized the behavior of Organization of the Petroleum Exporting Countries (OPEC) members as they prepare for the upcoming freeze talks comes from Iran, which on one hand is expressing support for a freeze and on the other vows to further ramp up production.

In noting that the Islamic republic has approached a pre-sanctions output level of 3.8 million barrels per day, Seyed Mohsen Ghamsari, director for international affairs for the National Iranian Oil Company, told media this week, "as everyone knows in the market, we are soon going to introduce new crude oil to the market by the end of the year."

He said this means increasing output "by at least 300,000 barrels a day so it means that we can match (our pre-sanction) production in two or three months."

This declaration gives further credence to widespread critical consensus that the freeze talks will be dead on arrival later this month; however, it doesn't violate the tone or tenor of the recent pact between Russia and Saudi Arabia to stabilize oil markets as some press reports state: that's because Russian president Vladmir Putin said the pact would recognize Iran's need to fully return to the international market and grant it some production leeway.

Still, Ghamsari's comments do seem to conflict with comments recently made by Bijan Zanganeh, oil minister for Iran, who has backed the idea of capping production by stating, "Iran wants a stable market and therefore any measure that helps the stabilization of the oil market is supported by Iran.

"We support oil prices between $50 and $60 per barrel."

Ghamsari effectively distanced himself from any accusation of contradicting Iran's potential (albeit doubtful) willingness to play ball in Algeria by remarking that it will be Zanganeh calling the shots at the OPEC meeting: "Based on his previous announcements, as soon as we can come back to the previous production (levels) before sanctions, we can think about that and discuss; now we are almost close to that production level."

Meanwhile, the latest expert to express weariness over the lead up to the meeting is Seth Kleinman, the head of European energy research at Citigroup; he told CNBC, "I'm going to join the rest of the market in remaining extremely skeptical that we're going to see anything actually change, such as barrels taken off the market as a result of the Algiers meeting."

As for the Russia/Saudi pact, he said, "It's not a coincidence that both countries are producing at the moment so a freeze wouldn't be that big a stretch but I'd say that, given how well the oil price responds to any rumor or murmur of a looming agreement, why not go ahead and have another meeting?

"It works very well."

Fereidun Fesharaki, founder of FACTS Global Energy, recently offered the harshest assessment yet of the freeze talks by pointing out that "Fundamentals do not change at all with the freeze: Saudis have upped their production to 10.7 million barrels a day, so immediate surge capacity for them is not more than 200,000 to 300,000 barrels a day.

"They max production, then they talk freeze, and markets are so stupid they take this as positive."