Eric Watkins
Oil Diplomacy Editor
There's a deepening gulf between Saudi Arabia and Iran these days, and it has nothing to do with the saline body of water that has separated them for centuries.
This gulf is about numbers and it emerged at the most recent meeting of the Organization of Petroleum Exporting Countries, where Iran defeated a Saudi proposal to increase production.
It was time to dust off the oil weapon again, and—in their own eyes, at least—the Iranians used it to good effect, rallying an anti-Saudi coalition of Algeria, Angola, Ecuador, Iraq, Libya, and Venezuela.
The Iranian-led group clearly ignored figures produced by OPEC's own secretariat, but the Iranians were never going to let numbers get in their way.
'US lobbying'
Believe it or not, the Iranians also tried to reverse things by claiming that the Saudis and their allies—Kuwait, Qatar, and the UAE—were the ones politicizing the June 8 confab.
That emerged just a few days after the June 8 OPEC meeting when Iran's Oil Minister Mohammad Aliabadi claimed the US had lobbied Saudi Arabia and the others before the gathering with the aim of interfering in OPEC and increasing oil production.
"Apparently, two or three weeks ahead of the OPEC meeting, Mr. Obama asked oil industry insiders to help lower oil prices," said Aliabadi, referring to the US president.
Iran's OPEC Governor Mohammad Ali Khatibi agreed, telling Iranian media that the countries that supported an output increase amounted to an effort to interfere with market forces under US pressure.
"There is currently absolutely no shortage in the market, and consequently there is no need to raise production," said Khatibi. "Raising supply in the absence of demand would amount to an interference in the market flow."
'No demand'
Khatibi said the three Arab countries can only raise the production of heavy and sour oils, while the market will only absorb increased production if it is of light category as there is no demand for heavy oil in the market.
But Khatibi clearly does not know much about the market that saw oil prices falling to nearly $98/bbl on June 13, after a June 10 report that said Saudi Arabia plans to boost its crude production (OGJ Online, June 10, 2011).
In the war of numbers now being fought between Saudi Arabia and Iran, the winner will be decided by the bottom line—and the market already has a view about that, too.
"We suspect that oil prices will continue to move lower over the weeks ahead as the ramifications of the Saudi production increase works itself through the supply chain," said Edward Meir at MF Global in New York.
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