Iran and Saudi Arabia are at odds over what to do next with the OPEC agreement, a conflict that could sow the seeds of the agreement’s demise over the course of the next year.
As the WSJ notes, the dispute centers around exactly what price the cartel should be targeting. Iran’s oil minister has said that the group should not push prices too high because it would likely spark an even greater production response from shale drillers. “If the price jumps [to] around $70…it will motivate more production in shale oil in the United States,” Iranian oil minister Bijan Zanganeh told the WSJ. Zanganeh has suggested $60 is about the right price for now.
Meanwhile, Saudi Arabia, which has much higher budgetary requirements and a desperate need to lift oil prices in order to bolster the valuation of the Saudi Aramco IPO, is unofficially aiming for $70 per barrel. Saudi oil minister Khalid al-Falih has repeatedly dismissed concerns about a shale wave.
Instead, the Saudis are hoping to keep the limits in place regardless of what U.S. shale does, at least for the next year or so. In the meantime, Saudi Arabia is trying to stitch together a more permanent framework with Russia for 2019 and beyond.
With the oil market dipping recently because of surging shale production, inventories are expected to build through mid-2018. That has Brent prices back down at about $65 per barrel, a price that is probably a little too low for the Aramco IPO. As such, Saudi officials have reportedly concluded that the IPO will be pushed off until 2019, after initially preparing a late-2018 offering.
Something like $70 per barrel would be more preferable. But at that price level, the risk is that U.S. gushes oil at even more impressive rates. According to Rystad Energy, U.S. shale would add an additional 600,000 bpd of oil if prices jumped from $60 to $70.
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