Apparently very little, according to traders and analysts polled by Bloomberg last week. The poll of 24 oil market observers had 22 predict Opec members would leave the current 30 million barrel per day production limit unchanged when they meet in Vienna on December 4th.
Much has been made of the light, sweet barrels pushed back onto the market as the US reduced imports amid surging domestic production. Additionally, Iraqi exports are expected to grow when the latest infrastructure debottlenecking is completed. Analysts are also working to understand how the recent Iranian nuclear deal will impact that country’s oil output profile next year.
“The outlook for Iranian production and exports in the second half of 2014 remains highly uncertain. The EIA has highlighted that Iranian fields continue to decline at around 8-13% per year, meaning that on average 300 kb/d of new production is needed just to keep production levels flat. Assuming negotiations continue and Iran adheres to its obligations under the Geneva Agreement, some of the heavy oil production that had been shut in could be restarted. Iran could be producing around 700-900 kb/d more oil by year-end 2014 than the 2.8 mb/d of oil that it is producing today.” – Michael Cohen, Barclays
Iran and Iraq would likely resist any pressure to limit their output as both aggressively seek to increase oil output and exports. So if overall Opec production limits remain unchanged, while member countries Iraq and Iran produce more, de facto cartel leader Saudi Arabia will be left to manage the balance.
“The Saudis will do what it takes to balance the physical crude market,” Societe Generale’s head of oil research Mike Wittner is quoted as saying in the Bloomberg story. Similarly, “Brent will price on Saudi behavior – and they are cutting supply indicating defense of $100/bbl (OPEC meeting Dec 4th),” said Deutsche Bank’s Paul Sankey in a research note.
Opec may be able to kick individual production quotas down the road this time, but if Iraq successfully rejuvenates its oil industry to the 9 million barrels of daily output some predict by decade end and Iranian sanctions continue to soften, the producer group will face increasingly difficult decisions at subsequent meetings.
