Oil prices dropped more than 1 percent on Tuesday as waning expectations of an OPEC deal weighed on the market.
"We are fighting a vicious war against IS," Iraq’s oil minister Jabar al-Luaibi told
Iraq makes a strong argument for its special treatment, but every exemption granted by OPEC to member countries pokes holes in the efficacy of a final deal. With Iran, Libya and Nigeria already not included in the planned cuts, the significance of any result is already in doubt. But if Iraq, too, is excluded, then any cut of substance will really need to come from Saudi Arabia.
OPEC members agreed to a collective cut of a relatively small 200,000 to 700,000 barrels per day. Much of that could be achieved through the usual seasonal adjustments in Saudi Arabia – as summer ends and cooler temperatures arrive, Saudi demand falls and as a result production is throttled back. Saudi Arabia might have cut several hundred thousand barrels per day because of the end of summer demand, and so it gains a lot and loses little by calling it a “production cut” as part of an OPEC deal, than to quietly lower output as it typically might at this time of year anyway.
Nevertheless, cuts from other members are also necessary even as output is actually on the rise. Nigeria and Libya are restoring production at a faster clip than some thought a few months ago. Nigeria’s oil minister said that his country’s output has
That presents a dilemma for OPEC, or more specifically for Saudi Arabia. Riyadh was the one that wanted the deal more than anyone (aside from, maybe,
That could be asking too much. The WSJ reported in early October that Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman authorized his negotiators to reach a deal on production cuts, but only involving amounts that Saudi Arabia
If that is the case, then it could be difficult to reach a deal in Vienna. Should OPEC grant Iraq an exclusion at the risk of leaving yet another major producer outside the framework? If Iraq is excluded, will Saudi Arabia make the deeper cuts necessary to make the deal work? If not, then the deal will need to be watered down tremendously, at which point, OPEC loses credibility once again. But if Iraq is not excluded, then it is possible that Iraqi officials could work to scuttle a deal altogether.
It has become something of a
By Nick Cunningham of Oilprice.com
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