Opec still ‘very unlikely’ to cut oil output in June

Opec is very unlikely to cut output at its next meeting in June, even if prices remain extremely low, according to organisation sources and delegates, as it will be too early to say how fast Iranian output is rising.

Wed, 02 Mar, 2016 - 00:00

The sources, which include officials from the Middle East, say Opec countries like Saudi Arabia also want to test Russia’s commitment to freezing output before taking any further steps to stabilise prices.

More than 18 months after oil prices began a steep slide due to excess supply, Saudi Arabia, Qatar, Venezuela and non-OPEC Russia agreed last month to freeze output at January levels in the first global oil pact in 15 years.

Saudi Arabian Oil Minister Ali al-Naimi said last week a supply cut was not on the cards, although adding the production freeze was only the first step to balance the market after prices fell to their lowest since 2003.

“Maybe by the end of the year (a cut could be possible) when it is really clear Iran is producing the volumes they are talking about.

"But not in June,” a source from one of Opec’s Middle Eastern producers said.

January was peak or near-peak production for Russia and Saudi Arabia, the world’s two top oil exporters, but Iran — Opec’s third largest producer — is the key supply uncertainty for 2016 as it is raising output after the lifting of Western sanctions in January, adding barrels to the already saturated market.

Over the past month, Iran issued conflicting statements saying it could add up to 1.5 million barrels per day over the next year which would confound market scepticism its fields were damaged by years of sanctions.

Meanwhile, its February exports have disappointed as European buyers were cautious to immediately boost trade amid remaining dollar clearance and ship insurance problems.

“No one at Opec knows what’s going on with Iranian fields. So the Saudis want to see what happens in reality,” a source in one of the Opec delegations who is familiar with production freeze negotiations, said.

Non-Opec Oman and some Opec sources have floated an idea of Iran being exempt from output freezes — as was Iraq in the past when the country was subject of international sanctions — but so far Tehran has not been offered any special terms, according to Opec sources.