Oil: Iran and Iraq remain sticking points for OPEC - HSBC

Iran does not appear to have shifted its previous OPEC stance that it will not freeze production until output has reached 4mbd notes, Research Team at HSBC.

Key Quotes

“According to Bloomberg data, the country last produced near that level in 2008. Iranian production recovered sharply in the first half of 2016 after US and EU nuclear-related sanctions were lifted in January, but monthly gains have been marginal over the past 5-6 months. This suggests that Iran’s output is close to capacity, and investments in new capacity will likely be required to reach the 4mbd target. Third party estimates suggest the country is now producing 3.7mbd – above the 3.6mbd cap level Saudi Arabia called for in its last stated position.”

“In addition to contesting the validity of OPEC’s production statistics, Iraq has also argued it should be exempt from freezing output because it is fighting IS militants (Reuters, 23 October 2016). However, the Iraqi oil minister issued a statement during this week’s technical meeting in Vienna pledging to offer new proposals to help OPEC reach an accord. Depending on whether the group’s GCC members are happy to bear a larger share of the output reduction, a possible compromise could be that Iraq pledges to freeze production rather than participate in outright cuts.”

“On 22 November, Bloomberg reported that OPEC’s technical committee did not resolve the issues surrounding Iran and Iraq’s participation, and that the decision had been deferred to the official OPEC meeting on 30 November. Whilst it is not too surprising that the most contentious issue has been left to the ministerial meeting, the failure to reach agreement after a series of technical committee consultations and informal meetings highlights the difficulty OPEC delegates will face in reaching consensus next week.”