Iran's Oil Minister Backs Extended OPEC Deal, Says Iranian Cuts Unlikely

It is unlikely that Iran will reduce its crude oil output but will go along with an OPEC decision to extend supply cuts to help boost prices, Oil Minister Bijan Namdar Zanganeh said.

"Iran will not cut crude oil output," Zanganeh said in Tehran Wednesday before leaving for the annual gathering of OPEC ministers in Vienna, Shana reported.

He made the statement on the sidelines of a signing ceremony for a deal on manufacturing corrosion-resistant pipelines in collaboration with a Spanish industrial group.

"There's an agreement in principle among OPEC countries that the cuts should be extended. We do not have a specific proposal, but the period of cuts could be extended for six or nine months. We have no problem about the extension and will accept whatever decision OPEC makes," Zanganeh said.

OPEC's top producer Saudi Arabia "is interested in higher oil prices," he said without elaboration.

Oil traded at around $115 in mid-2014, but prices nosedived to as low as $27 a barrel by the beginning of last year, the lowest in more than a decade. OPEC agreed last year to cut output by nearly 1.2 million barrels per day in a bid to ease bulging inventories and lift persistently low prices. 

World's top producer Russia and some other nations outside the 13-member oil group jumped on the production cut bandwagon in December, pledging to reduce daily supplies by an additional 558,000 barrels. 

Iran, the No. 3 OPEC producer, was exempt from the cuts and was allowed to produce an average of 3.8 million barrels daily through the first half of 2017. The exemption was seen as a victory for Tehran, which had long argued it needed to regain market share lost under international sanctions.

Tehran's willingness to stick to its current production ceiling signals the country is already producing near capacity, Bloomberg said on Wednesday, citing a report by analysts from BNP Paribas SA and Energy Aspects Ltd.

"The Iranians clearly have big ambitions for their oil industry, but they’ve made slow progress,” said Richard Mallinson, an analyst at Energy Aspects in London. “Technically, they’re going to struggle to lift crude production above that level until the effect of foreign investment starts to be felt.”

Consensus Over Prices

There is a growing consensus among producers of the Organization of Petroleum Exporting Countries that $55-$60 is the suitable price range for crude oil, according to Mehdi Asali, former director of OPEC affairs at the Oil Ministry.

"There is an unwritten agreement among OPEC nations that oil should settle somewhere between $55 and $60 per barrel in the near future," Asali said ahead of the first formal meeting of OPEC ministers in Vienna, state news agency IRNA reported.

Asali was confident that OPEC and Russia, whose energy minister is expected to attend the meeting, will support extending the cuts for six to nine months.

Saudi Oil Minister Khalid al-Falih and Russian Energy Minister Alexander Novak said earlier this that they had reached an agreement to extend the cuts into the first quarter of next year.

The announcement helped push up prices and boosted prospects for the supply cut deal which had lost steam in the past few weeks.

Asali added that higher output from the US shale industry, which received a fresh lifeline on the back of upturn in prices, will continue to weigh on global oil markets.

"Rampant US shale supplies will exacerbate a global glut and keep prices down," he noted. According to reports, Total number of active rigs in the US crossed 900 this month, the highest in more than two years.

Asali also ruled out the possibility of deeper OPEC cuts. "It took months of wrangling among OPEC producers to settle on a 1.2 million-bpd collective output cut. It seems unlikely that OPEC will announce deeper cuts on Thursday, say, 1.8 million barrels a day."