- Iranian minister to attend Algiers oil meeting
- Saudi production hits record highs in July
- Higher oil prices may obviate need for cap
Has Opec's verbal intervention removed the need for action in Algiers? Photo: iStock
By Michael McKenna
On August 23, when WTI crude oil had just begun its decline from the $49-plus/barrel level reached just days before on a flurry of verbal intervention from both Opec and Russia, CNBC reported that Iran would consider joining some sort of production cap or freeze deal "after reaching its pre-sanctions production level".
Tehran's need to at least recover the revenues lost during the sanctions period, of course, was the stumbling block that toppled any chance of a freeze or cap at April's Doha summit.
In Saxo bank head of commodity strategy Ole Hansen's view, this issue this time around may have less to do with production levels and more to do with geopolitics.
"This time around we are seeing Iran being prepared to cooperate [so long as] its pre-sanctions output is in place," says Hansen, adding that "Saudi Arabia doesn't have much to lose if production is frozen at current levels".
Saudi production hit a new record in July in response to rising domestic demand.
According to Saxo's commodities head, the upcoming IEF meeting is "a natural venue" for potential freeze talks, but Opec has proved far more able to suåpport oil markets with talk than with action.
"Opec members have shown several times during oil's protracted selloff [from its mid-2014 heights] that talk alone can move the price of crude".
As far as action goes, however, Hansen says that Iran's presence at the talks could once again prove the spoiler, as "from a geopolitical perspective, Saudi Arabia would balk at the prospect of surrendering marketshare to Iran."
Riyadh and Tehran remain at opposite poles of the current alliance-structure in the Middle East, with Shiite Iran lying closer to Russia and the Syrian Assad regime, and the Sunni Saudis linked to the US in both its incursions into yemen and in its support for rebel groups in Syria.
Beyond imperial strategising, though, Ole Hansen says there are several more pressing issues facing the Algiers summit, notably the potential re-emergence of US shale suppliers if crude prices rise and the current price range.
"At this stage, with oil having returned to $50/b, the need for action has been much reduced and on that basis I see limited need for action. Any action would probably have a limited impact anyway considering how some of the major producers are already producing flat-out."
Ole Hansen is head of commodity strategy at Saxo Bank