Extra Iranian Oil Inevitable

Extra Iranian  Oil InevitableExtra Iranian  Oil Inevitable

The surge in Iran's oil production capacity over the next several months is "inevitable" and Saudi Arabia, along with other members of the Organization of Petroleum Exporting Countries, should be prepared for the extra Iranian crude, an energy expert said.

"Cooperation with Iran would be in the long-term interest of OPEC member-states," Hormoz Jafari added, noting that the anticipated rise in the Persian Gulf country's oil output is only one of the many factors affecting oil prices, ILNA reported.

He stressed the "undeniable need for cooperation" between Tehran and Riyadh, among other OPEC members, adding that the stability of oil market would help bolster economic stability and security in the region.

Oil Ministry officials do not expect the country's extra crude output to cause a collapse in prices, predicting a $3-4 drop when the new supplies hit the oversupplied crude market.

Iran plans to raise crude output by 500,000 barrels a day shortly after sanctions are removed and by 1 million barrels within the following five months. Speculations suggest the Islamic Republic will reach the 500,000-bpd milestone by late November or early December before the sanctions are lifted.

Jafari referred to Saudi Arabia's heavy budget deficit in light of the kingdom's push for pumping more oil to retain market share and said its nonconformist approach would affect all oil producing countries.

OPEC, of which Saudi Arabia is the largest producer, decided in December and again in June to keep its production target unchanged at 30 million barrels a day. The group has exceeded this official target every month since May 2014.

Saudi Arabia has estimated its expenditures for 2015 to reach $229 billion with revenues estimated at $191 billion, resulting in a whopping deficit of $39 billion.

According to Saudi officials, the kingdom withdrew $65.1 billion from its general monetary reserve during the first five months of 2015.

Jafari also pointed to the US shale oil as a driving force behind the oil glut and low prices. "US shale oil production capacity has grown by 85% over the past few years," he said.

The Saudis' policy to pump oil at any cost, however, seems to be taking its toll on the US shale industry.

The US Energy Information Administration said earlier this month the country's shale oil output is expected to drop the most on record in November, spurring hopes that global oil prices would pick up after months of heavy losses.

"US shale oil and China's economic downturn influence the oil market as well," he added.

The expert also underlined the role of Russia, a non-OPEC producer, in the global oil market.

"Whether Russia approves OPEC's policies or walks its own path would affect the oil prices," he added.

Last month, Igor Sechin, CEO of Russia's state-owned oil major Rosneft, said Moscow has no interest in joining OPEC because the organization "has lost its influence as a key market regulator".