OPEC+ Set to Revise Output Quotas as Russian Production Hits Post-Soviet High

India will use rupees to buy oil from "powerless" Iran. File Image / Pixabay

Although its impending meeting in Algeria on Sunday has largely failed to garner much analytical scrutiny, the Organization of the Petroleum Exporting Countries (OPEC) is widely believed to be prepared to discuss how to allocate supply increases to offset the loss of crude exports from Iran under the U.S. sanctions; and this much was confirmed on Thursday by Azerbaijan.

In stating that its minister, Parviz Shakhbazov, will attend the meeting, the Azeri energy ministry noted that OPEC and non-OPEC oil producers plan to spend their time revising oil production quotas - but stopped short of disclosing any other details.

It's unclear whether the meeting will assuage analysts who fear a crude market tightening is inevitable, even if OPEC and its allies come up with clear strategies on how to compensate for the loss of exports; however, signs persist that many nations are in fact enjoying record-high output with no sign of production strain.

Such is the case with Russia, an unnamed official of which told Bloomberg on Thursday that the country's output is currently fluctuating between 1.54 million and 1.55 million tons per day, thanks  mainly to state-run Rosneft.

That equates to 11.29 million to 11.36 million barrels per day (bpd), beating the previous record of 11.25 million bpd set in October of 2016.

Bloomberg also noted that Russia could boost its production by about 300,000 bpd above the October 2016 record within a year, which may be considered in Algeria as OPEC debates to what extent its output cut initiative should be rolled back.

Meanwhile, Iran is reported to be already receiving payments for some crude exports in rupees, and that the currency will be used by India starting in November to settle payments because the sanctions will make it difficult to settle trades through European banks.

Given the contortions being undertaken to conduct dramatically reduced trade with Iran, it's perhaps not surprising that Bijan Zanganeh, energy minister for the Islamic republic,recently said his country would veto any OPEC decision that shrinks its market share, and that it has no authority to decide on a new production agreement.

But Julian Lee, oil strategist for Bloomberg, noted that Iran's veto threat will have no impact on oil supply and will be ignored by those producers who are able to boost their oil production.

He wrote, "In practice, such objections have little impact on how individual members of the producer group act: OPEC has no power to police the actions of its members, nor to apply sanctions if they flout agreements."

He concluded that Iran "can't stop Saudi Arabia and Russia from raising output; it could theoretically block any OPEC agreement when ministers meet in December, but that would simply take the group back to its previous pump at will policy, which is the opposite of what Iran wants to see."

It will be interesting to see how wide the rift between Iran and OPEC will grow moving forward; earlier this week, after stating that he would attend the Algeria meeting, an Iran oil ministry spokesman told media that "Zanganeh will not attend....he has changed his mind."