Saudi Arabia and its Gulf allies will reject calls from fellow OPEC members to cut output, Iran said on Wednesday, two days before the group meets amid flagging oil prices and a worsening global glut.
“It is unlikely that these countries voluntarily cut their output,” Iran’s OPEC governor Mehdi Asali told Iranian news agency Shana, adding that a majority of members would support a cut.
OPEC is widely expected to stick to its policies – enforced by Saudi Arabia’s oil minister Ali al-Naimi a year ago – of defending market share by pumping record volumes to drive rival, higher-cost producers out of the market.
While the Saudis can claim a partial victory over the U.S.
shale oil boom, production from top non-OPEC rival Russia continues to surprise on the upside and OPEC members Iraq and Iran are set to add new barrels. World oil stockpiles are at a record, according to the International Energy Agency.
Iran has also asked OPEC to respect the ceiling of 30 million bpd, while Venezuela has said it will push for a 5 percent output cut at the meeting.
Three OPEC delegates told Reuters they saw no indication that an agreement on cuts would be reached on Friday. “I hope this time it will be different, but I doubt it will be,” said a delegate from a country usually seeking cuts.
OPEC price hawks have been calling for cuts since last year but have not volunteered to reduce output themselves, meaning the burden would have to be carried by Saudi Arabia alone.
Arriving in Vienna on Tuesday, Naimi said he would listen to other members, many of whom are complaining about oil prices that have fallen to near six year lows of close to $43 a barrel from as high as $115 some 18 months ago.
OPEC’s own basket of crude grades has been trading at below $40 since mid-November, the weakest since early 2009.
OVERSUPPLY CRISIS
For Saudi Arabia, the prospects of big fiscal deficits has already prompted officials to float the idea of potentially unpopular reforms, including introducing value added tax and cutting energy subsidies.
Reduced oil revenue is also causing some of the influential business class to push Riyadh to quickly find an end to its expensive war in Yemen, the kingdom’s biggest strategic gambit in decades, and one that defines King Salman’s foreign policy.
However, while it has made steps to cut excess expenditure, the government has indicated it will use its vast foreign reserves and low debt levels to keep capital spending high in coming budgets to maintain private sector growth.
“Their financial position does not suggest any urgency,” Morgan Stanley said on Wednesday, adding the Saudis would oppose an OPEC cut as it would only benefit rival suppliers.
The decline in oil prices in the past months was steep enough to deal a severe blow to the U.S. oil industry – where production costs are some of the highest in the world.
But outside the United States the there are few signs of a slowdown in supply, prompting many commentators to predict that the glut would not clear before 2017 despite robust demand.
Fresh data on Wednesday showed Russia held its output steady in November at a post-Soviet high.
Russia’s top state bank Sberbank said it saw no chance of a cut on Friday: “This, of course, would raise prices but would also give U.S. shale producers an opportunity to hedge their output and prolong the oversupply crisis rather than solving it”.
