The most recent news in the months-long production-freeze dance between OPEC countries has apparently led to an ultimate goal to cut OPEC production by a total of 200,000 to 700,000 barrels per day from current levels. The talks have also yielded a dispensation from OPEC, led by Saudi Arabia, for three countries to set their production levels at their 2016 highs while other countries cut. OPEC apparently agrees to exemptions for Libya, Nigeria, and Iran, because each of these nations have faced geopolitical conflicts hurting their oil production and economies. However, the disagreements do not end there.
Iran is not happy with the numbers being floated for its exemption. OPEC apparently sets Iran’s production level at 3.665 million barrels per day, but Iran says it produced (in September) 3.85 million barrels per day. Moreover, Iran hopes to produce over 4 million barrels per day. While Saudi Arabia looks magnanimous supporting a dispensation for its antagonist across the Persian Gulf, an agreement may not be that simple. No production agreement can be reached without at least initial Iranian participation.
At the same time, Iraq is not happy about the current state of talks. Iraq has faced its own geopolitical struggles for decades and wants a dispensation just like Libya, Nigeria, and Iran may receive. However, OPEC, again led by Saudi Arabia, says no. Iraq recently took the unprecedented step of releasing its field-by-field production figures to the public. This unusual transparency, however, does not appear to be having an influence on OPEC’s stance. Currently, Iraq is the second largest producer, so if they insist on a dispensation, either OPEC will accede or a deal will be impossible.
Further, before any OPEC deal is settled, OPEC will want to know how major non-OPEC players (particularly Russia) will react. Will Russia participate in production cuts or will Russia, as it has previously, perhaps speak of cutting production while taking advantage of OPEC’s actions to sell more of its own oil? (In September, Russia produced 11.1 million bpd, a post-Soviet era high).
Obstacles remain before an OPEC deal is reached. However, for the first time in a while, oil ministers are talking about concrete numbers with an actual view towards taking some action. The next big meetings are at the end of November, when OPEC has a pre-meeting event on the 25th and its annual meeting on the 30th. The annual meeting will mark two years since OPEC sent a precarious oil market over the edge when it decided against production quotas. New quotas at the end of November would be the news anticipated since that notorious meeting.