Surging Oil Prices a Boost for Aramco IPO but Iran Says It's No Good for OPEC

Conditions supporting the prices are also wreaking havoc in the supertanker industry, according to experts. File Image / Pixabay

As predicted, Tuesday's market showing of Brent rising above $68 per barrel is reportedly causing both jubilation as well as fear within circles of the Organization of the Petroleum Exporting Countries (OPEC): on one hand, the price is proof that the cartel's persistent production cutbacks are having a positive effect on tightening the market, but on the other the gains will likely spur even more U.S. production.

An unnamed official from OPEC told Reuters, "We all are excited about the rally and want to see if it will be sustainable during the year, as it will certainly whet the appetite of shale producers."

But Bijan Namdar Zanganeh, oil minister for Iran, on Tuesday declared that "Members of the Organization of Petroleum Exporting Countries are not keen on increased Brent crude prices above $60 a barrel because of shale oil."

It should be noted that the Islamic republic isn't required to cut its output under the OPEC agreement and pumped 3.8 million barrels per day last month.

The production cuts that caused crude to approach the $70 mark has registered at least one outright casualty: supertankers, whose earnings plunged by more than half in 2017 because the OPEC cuts "reduced the number of cargoes from the Middle East to Asia significantly at a time when a large amount of newly-built vessels are being delivered," according to Olivier Jakob, managing director at Petromatrix GmbH.

Earnings for supertankers decreased by 57 percent to $17,794 per day on average last year, the lowest since at least 2009; analysts had anticipated an average of $25,000 per day for 2017.

However, Bloomberg points out that "Some countries may welcome higher prices as a way to plug government deficits: Iraq has been fighting insurgents in the country and a dispute with its northern Kurdish region is curbing exports from that area; Saudi Arabia is increasing pay to some government and private sector workers to compensate for increased prices on some goods such as fuels."

Tim Fox, group head of research chief economist at Emirates NBD, told Bloomberg television that if nothing else, the current crude prices are helping Saudi Arabia's state-run Aramco initial public offering estimates to the tune of $1-$1.5 trillion "and giving confidence that the Aramco deal is making progress and is likely to go ahead sometime this year."

He added that the Saudis' fiscal shape is also vastly improved, "largely because of oil prices."

One thing seems more and more certain in 2018 as events contradict analytical forecasts: OPEC seems less inclined than ever to abandon its cutbacks, despite widespread predictions in 2017 that it would do so

This was the contention earlier this week of Julian Lee, oil strategist for Bloomberg, who pointed out that the cartel wouldn't end the deal due to cutback cheaters because the habitual cheaters are already pumping close to capacity; and it wouldn't back out due to surging U.S. shale because it would be too much of a personal blow to the Saudis.