Saudis, Venezuela Push for Supply Cuts Extension as Iran Brags About Boosting Production

Iran claims it will pump as much as 4.5 million bpd within five year. File Image / Pixabay

Despite  evidence that the Organization of the Petroleum Exporting Countries (OPEC) output reduction initiative has been ineffective, supporters have credited it for bringing global supply and demand closer to rebalance at worst and achieving full rebalance at best - but one such supporter, Saudi Arabia, is open to contrary viewpoints: on Monday it stated its willingness to participate in an extension of the cutbacks beyond next March.

Khalid Al-Falih, energy minister for the Saudis, agreed with his Venezuelan, Kazakh, and United Arab Emirates counterparts during a group meeting in the Kazakhstan capital of Astana to consider prolonging production cuts "beyond the first quarter of 2018, if needed."

The kingdom and Kazakhstan said such an extension "would be considered in due course as market fundamentals may dictate," according to a separate Saudi statement.

Al-Falih and Venezuela also noted that their countries are exceeding full compliance under the OPEC cuts and that they share "an optimistic outlook" on global supply and demand for crude next year; however, Eulogio Del Pino, oil minister for Venezuela, warned that for the present, global inventories remain too high at about 3 billion barrels, 300 million above the level he considers normal: "Those 300 million barrels are going to impact speculation in the market."

Del Pino went on to say that Libya and Nigeria, which were exempted from the OPEC initiative due to civil unrest, should be put under quotas as well in order for the cutbacks to work; he concluded that meetings with Middle Eastern and Russian ministers will occur in the near future, since both Moscow and Riyadh agree that the cuts should continue till June 2018.

While it's unclear what positive effect if any a three month extension would have on the market, the prospect of prolonged cuts was once more spoiled by familiar news from Iran: Ali Kardor, the managing director of the National Iranian Oil Company (NIOC), announced that the Islamic republic will reach an oil production rate of 4.5 million barrels per day (bpd) within five years, compared to the 3.8 million bpd it has been pumping of late.

He added that oil exports are expected to reach up to 2.5 million bpd within five years.

Iran is one of several OPEC members that have severely compromised the efficacy of the cutback initiative and yet have consistently been supported by the cartel's secretary-general Mohammad Barkindo: for example, in July when it became evident that a production revival would occur in Libya, Nigeria, and Iran, Barkindo said the cutbacks were structured to accommodate their output and that he was "glad" for their recovery because the proper course had already been set for a healthy supply and demand balance.