An interesting tussle is on within the expanded OPEC+.
The expanded Organization of Petroleum Exporting Countries, OPEC+, is involved in an interesting tussle. Increasing market share is of maximum importance to some, while propping up market prices is of utmost importance to others. There is a diametrical difference between the two objectives.
While Saudi Arabia, in conjunction with Russia, is working hard to put a floor beneath the crude markets by cutting their respective output, countries like Iran and Venezuela are targeting to increase their production and gain back some lost market share at a time when output is reportedly recovering in Kazakhstan and Nigeria.
Markets for crude oil are torn between these two conflicting and contradictory strategies.
As the Wall Street Journal reported in early July, Iran’s exports have soared to their highest levels in nearly five years owing to a $30 per barrel discount Tehran is offering its regular customers. May and June were the first months when Iranian exports reached 1.6 million barrels per day (bpd).
This is more than twice the amount of oil Iran sold during the same period last year, and it’s also the highest volume of oil Iran has exported since US sanctions were reimposed in 2018. From 250,000 barrels in 2019 and 2020, this is a significant increase.
OPEC heavyweight Saudi Arabia is concerned about this. Iranian oil production is increasing, which poses a challenge to OPEC’s market dominance.
An interesting case study is Iran’s output trajectory despite Western sanctions. Over the last few years, it has gradually grown. In May 2023, Iran’s monthly production averaged 2.679 million barrels per day, according to OPEC’s secondary sources.
In May 2022, Iran produced 2.544 million barrels per day, an increase from 2.455 million barrels per day in May 2021. A significant increase from May 2020, when Iran’s production was less than 2 million bpd and registered at 1.978 million bpd.
As a result of sanctions, Iran has successfully exported its oil and maintained a respectable market share. To avoid sanctions, Tehran blended Iranian refined oil with Iraqi oil for a short period of time.
To avoid detection by tanker sleuths, it engaged in ship-to-ship transfers and turned off AIS (Automatic Identification System) transponders. In some ways, too, Russia has followed the same path to continue exporting its oil since coming under Western sanctions.
The increase in crude exports is not just limited to Iran. Venezuela’s oil exports rose by eight percent to over 715,000 barrels per day in June from the previous month.
In the first half of the year, Venezuela’s oil exports averaged 670,000 barrels per day, almost 15 percent more than the 585,000 barrels per day in the same period of 2022.
On the sidelines of the OPEC+ seminar in Vienna earlier this month, Gabriel Tanimu Aduda, Permanent Secretary at Nigeria’s Ministry of Petroleum Resources, told Energy Intelligence that Nigeria, OPEC’s largest producer in Africa, hopes to increase its oil production by November 2023 to 1.7 million barrels per day, from 1.5 million barrels per day.
Saudi Arabia and Russia, two major oil producers, are concerned about all this, as they appear determined to regain control of the oil markets. OPEC’s efforts are hindered by the increase in output from other members.
There have been similar situations in the past for OPEC as well.
On all such occasions in the past, it has managed to sail through the odds and maintain a semblance of unity within the group despite dissensions within. One must concede that this time could be no different as well.
As a result, the recent meeting between Iran’s Oil Minister Javad Owji and his Saudi Arabian counterpart Prince Abdulaziz bin Salman needs to be viewed from this perspective.
OPEC+’s success in getting its house in order and overcoming centrifugal forces within its ranks would determine oil markets.
The emerging crude market situation must be closely monitored by cash-strapped, oil-importing countries like Pakistan. As long as OPEC remains divided on output, it may be able to reduce Pakistan’s oil import bill significantly and control inflation.
Unless the global demand outlook changes, Pakistan will be at the mercy of crude market dynamics.