The OPEC+ meeting held on June 22nd ended with the decision of the 24 members group to increase the overall oil production of around 700,000 b/d.
Looking at the numbers it is clear that already in June Russia and Saudi Arabia had already opened the spigots, abandoning the output restraints that were undertaken since the end of 2016.
Saudi Arabia compliance felt to 26% and Russia’s to 55%, bringing down Opec overall compliance to 126%, from 159% previously, and non-Opec’s to 61%.
Instability causes prices to rise
Some balancing factors kept average compliance under control and prices up.
The first one is Venezuela, as the ongoing political and economic crisis is rapidly diminishing its oil output.
A second is Libya. The ongoing struggle for power between the two rival Libyan governments has already caused the country’s oil production to plummet by 850,000 b/d.
In the attempt of bypassing the Tripoli authorities, east Libyan General Haftar engaged in a dispute that closed down four Libyan oil ports for three weeks, before handing them over to the Libyan NOC.
The effect on oil price was immediate, with Brent reaching $80 a barrel. However, as quickly as the price rose, it also decreased as soon as the ports reopened, bringing the price of Brent down to $77 a barrel.
Iran ready to fight back
The oil market is certainly keeping an eye on Lybia and Venezuela, but the country that is getting most of the attention is currently Iran.
Following the decision of leaving the JCPOA in May, the Trump administration will impose unilateral sanctions on Iran.
Most buyers of Iranian oil already clarified that they are not going to implement sanctions against Teheran, however analysts estimated output to decrease by between 300,000 b/d and 1 million b/d.
The decision taken in occasion of the Opec+ meeting in June was definitely bad news for Teheran.
In a rather complex scenario, Iran found itself under pressure and supported the decision of increasing overall production, aware that that will easily result in a loss of its market share, as other producers, notably Russia and Saudi Arabia, will open the taps.
In the beginning Iran looked quite passive, but in the last weeks it has been rather vocal in defending its place in the oil market.
Following the tweet by Donald Trump of the 4th, accusing Opec of not doing enough to lower oil prices, but rather driving them up, the Iranian Opec governor, Hossein Kazempour Ardebili, said tweets by the U.S. are the reason why prices are increasing.
Ardebili called the U.S. to review its aggressive rhetoric, that is causing more harm than good.
Then, Iran played offence, by threatening to close the strait of Hormuz in response of any attempt to thwart its oil exports.
The narrow waterway at the mouth of the Persian Gulf carries around 30% of seaborne-traded crude oil and 20% of world total.
The effects of such a decision would be catastrophic, as alternative routes are much more difficult and only Saudi Arabia and the Emirates have pipelines that can be used to export oil out of the gulf. Prices would go sky-high.
It is not sure whether this is a real threat, or just a deterrent, what is certain is that Iran does not seem willing to be cornered, at all.