From Asia Times
History may have registered stranger geoeconomic bedfellows. But in the current OPEC-plus world, the rules of the game are now de facto controlled by OPEC powerhouse Saudi Arabia in concert with non-OPEC Russia.
Russia may even join OPEC as an associate member. There's a key clause in the bilateral Riyadh-Moscow agreement stipulating that joint interventions to raise or lower oil production now are the new norm.
Some major OPEC members are not exactly pleased. At the recent meeting in Vienna, three member states -- Iran, Iraq and Venezuela -- tried, but did not manage to veto the drive for increased production. Venezuela's production is actually declining. Iran, facing a tacit US declaration of economic war, is hard-pressed to increase production. And Iraq's will need time to boost output.
Goldman Sachs insists: "The oil market remains in deficit" requiring higher core OPEC and Russia production to avoid a stock-out by year-end." Goldman Sachs expects production by OPEC and Russia to rise by 1.3 million barrels a day by the end of 2019. Persian Gulf traders have told Asia Times that's unrealistic: "Goldman Sachs does not have the figures to assert the capability of Russia and Saudi Arabia to produce so much oil. At most, that would be a million barrels a day. And it is doubtful Russia will seek to damage Iran even if they had the capacity."
In theory, Russia and Iran, both under US sanctions, coordinate their energy policy. Both are interested in countering the US shale industry. Top energy analysts consider that only with oil at $100 a barrel will fracking become highly profitable. And oil and gas generated via fracked in the US is a short-term thing; it will largely be exhausted in 15 years. Moreover, the real story may be that shale oil is, in the end, nothing but a Ponzi scheme.
Those were the days when the Obama administration ordered Riyadh to unleash a de facto oil-price war to hurt both Russia and Iran. Yet the game drastically changes when Venezuela loses a million barrels a day in production and Iran, under upcoming sanctions, may lose another million.
As Asia Times has reported, OPEC (plus Russia) can at best increase their production by 1 million barrels a day. And that would take time because, as Persian Gulf traders said: "800,000 barrels a day of their cutback is due to depletion that cannot be restored."Oil producers don't want high prices
Most oil-producing nations don't want high oil prices. When that happens, demand goes down, and the dreaded competition -- in the form of electric vehicles -- gets a major boost.
That explains in part why Riyadh prevailed in the price-capping war in Vienna. Saudi Arabia is the only producer with some spare capacity; the real numbers are a source of endless debate in energy circles. US-sanctioned Iran, for its part, is in acute need of extra energy income and had to be against it.
The bottom line is that despite the agreement in Vienna, the price of oil, in the short-term, is bound to go up. Analyses by BNP Paribas, among others, are adamant that supply problems with Venezuela and Libya, plus the proverbial "uncertainty" about the sanctions on Iran, lead to "oil fundamentals still...favorable for oil prices to rise over the next six months despite the OPEC+ decision."
Iran's Petroleum Minister Bijan Zanganeh has done his best to downplay how much oil will really be back on the market. In tandem with Persian Gulf traders, he certainly knows that can't be more than 1 million barrels a day, and that such an output boost will take time.
Considering that in realpolitik terms Riyadh simply is not allowed any "decision" in oil policy without clearing it first with the US, what remains to be seen is how Washington will react to the new, long-term Riyadh-Moscow entente cordiale. As far as oil geopolitics goes, this is in fact the major game-changer.Business as usual
The Big Unknown is how the US economic war on Iran's oil exports will play out.
Iran's Zanganeh has been quite realistic; he does not expect buyers to get any sanctions waivers from Washington. Total and Royal Dutch Shell have already stopped buying.