Iran is busy preparing to increase its output to pre-sanction levels
Iran, which distinguished itself prior to the Organization of the Petroleum Exporting Countries' (OPEC) decision to cut output by stating it won't participate until it boosts its production to pre-sanction levels, is now urging members and non-member countries to go along with the agreement – and the market responded with oil prices climbing over 1 percent on Monday.
Brent rose by 70 cents, or 1.4 percent, to $50.89 per barrel, while West Texas Intermediate rose by 57 cents, or 1.2 percent, to $48.81 per barrel.
Phil Flynn, analyst at the Price Futures Group, noted, "It's kind of a light volume day and we're moving from headline to headline, but still Iran telling Venezuela that all countries are going to have to join this production cut is gaining traction because there are many who want to believe this deal will get done."
Phil Flynn, analyst, Price Futures Group
Iran telling Venezuela that all countries are going to have to join this production cut is gaining traction because there are many who want to believe this deal will get done
"There's already a soft commitment from Russia that it will be part of the OPEC plan, and if more non-OPEC members get on board, prices can only go higher."
Iran began its campaign with president Hassan Rouhani telling Venezuelan president Nicolás Maduro in a phone call that it's essential to take a decision to raise the price of oil and stabilize the market.
Maduro later told the press, "We promised to stay in permanent coordination to keep consolidating this agreement with OPEC and new alliances with producer countries like Russia."
Rouhani was also quoted by Iranian state news agency IRNA as saying, "All countries should help the committee of experts to take decisions in (OPEC's) November summit that raise oil prices"; he added that OPEC members should also negotiate with non-OPEC members to stabilize the market.
Meanwhile, Iran is busy preparing to increase its output, via the signing on Tuesday of a new petroleum contract that will reportedly enable the Islamic republic to raise its crude production to the pre-sanction level of 4 million barrels per day (bpd).
While few critics think the OPEC cut will do anything to reduce the global glut and instead will merely cause U.S. companies to put more drills into action (thus provoking a retaliatory response from OPEC), they concede it was smart strategy on the cartel's part.
Analysts at RBC Capital Markets said in a note, "Naysayers will undoubtedly ... deem the agreement typical OPEC noise, yet at a minimum it means that OPEC has bought themselves a price floor for at least the next two months heading into the November meeting."
Details of the cut will presumably be hammered out during OPEC's November meeting in Vienna, but Barclays warned clients in a note that "In raising expectations of a November deal to cut production, it also risks a steep price decline should it fail to achieve its goal of cutting output back to less than 33 million bpd."
But the bank does not expect a decline of the magnitude of late last year.
Even though Russia is proving to be an Iran-style booster of the OPEC cut agreement, last week it protected its own interests by maintaining its outlook that crude prices will average $40 in the next three years - the same level said to be vital in ensuring the country's future economic health.