Oil markets and the return of quotas conflict

Oil markets experiencing a state of incompatibility between producers, which recently resulted in the absence of cooperation failing to reach to an agreement between the major producers on freezing production ceiling in the Qatari capital Doha on April 17 / April.

The issue of market shares is the biggest obstacles to any agreement on the production ceiling, which is what we saw during the Doha meeting recently, exert substantial the major producers do not show any compromise on of their market shares even if it is to restore balance to the oil market, which may restore of a glut of oil supply to the forefront.

Iran, which did not participate in the meetings in Doha insists that no negotiations on market share, and is seeking to reach the production ceiling during the period preceding the imposition of international sanctions.

Saudi Arabia – Iranian competition

The political tension that has recently evolved between Saudi Arabia and Iran led to the real confrontation in the oil markets, but this development is appeared in a race form to raise production in both countries, which made Iran absent from the Doha meeting as we mentioned earlier.

Saudi Arabia, which required the participation of Iran and its commitment to the decision to freeze the production ceiling, the other is non-negotiable on its market share, estimated at about 10.5 million barrels a day.

“Citigroup” , one of the largest US financial services companies , said in a note to clients: “The biggest downward risk at the moment is that Iran is speeding up the pace of increasing production.”

Citigroup company suggested that Riyadh is targeting new sales by 500 thousand barrels per day, bringing production to 11 million barrels a day at least.

Sources indicate that the production of Iran recently reached about 3.6 million barrels per day, noting that it has been estimated before the blockade between 3.700-3.800 bpd.

In spite of what is said, the competition would not be in favor of Iran, particularly since it is in a confrontation with the world’s oil giant, and as mentioned in previous articles that the road in front of Iran is not easy , and therefore Tehran may face a lot of financial and institutional constraints after years of isolation that had exhausted it .

All indications have emerged that show the fact that the arrival of Iran’s production to the ceiling of production in just three months confirms that Iran has taken a green light in advance of the announcement of a deal between the West and Tehran, and that the nuclear deal will be no doubt.

We do not rule out that Iran to declare in the next few months for raising the production ceiling by more than 500 barrels per day, surpassing the volume of production pre Western sanctions, which means that beyond the ceiling of 4 million barrels a day.

The Iranian oil minister recently said that his country’s production will jump to four million barrels per day by March 2017, according to the transmission of the Iranian state television.

Apparently we will see in the coming days more tug particularly after the consensus of the Arab countries and Islamic countries to condemn Tehran of supporting terrorism in the region, and we will see the escalation of this scene between producers, led by Saudi Arabia on the one hand, and Iran on the other hand, which is expected to behave more tough in many of the issues, especially the increase in the production ceiling to more than expected, and it is expected that this policy will be negatively reflected  on the OPEC meeting due to be held in next June , which may end up like its predecessor, without agreement , however, oil quotas war comes at a time when states need it to revenue, especially those that their revenues and their budgets are eroded because of the collapse in oil prices.

Amer Al-Omran

Rawabet Research and Strategic Studies Center