Oil prices future.. fwiw reports from stratacor suggests that if Iran and Nigeria have their way we may see some cheating ahead, the OPEC meeting may not be so snooth..
Reports emanating from very reliable sources in Oil circles indicate that Iran's Foreign Ministry Jan. 11 announcement that Nigerian President Olusegun Obasanjo accepted an invitation to visit Iran soon has a lot to do with the politics of Oil pricing. The invitation was extended to Obasanjo by Iran's ambassador to Nigeria, on behalf of Iranian President Mohammad Khatami. The proposed visit will most likely involve some discussion of the upcoming OPEC meeting in March, at which the 11 members will discuss extending the current production cuts.
This vist may have possible impact on relations between Iran and Saudi Arabia as they could cool, both Iran and Nigeria have good reason to cash in on current high oil prices and both have histories of cheating on OPEC quotas. If this occurs the oil prices shall drop, which will hurt Saudi interests. Khatami's invitation to Obasanjo was actually extended so that the two can forge a joint front in the upcoming negotiations on OPEC quotas. This would pit Iran and Nigeria against Saudi Arabia and Venezuela. In March, if Iran and Nigeria decide to capitalize on high prices and flood the market despite an extension of OPEC quotas, the price of oil will fall significantly.
Iran invitation to Nigerian president to visit soon, suggests that the two countries could be coordinating their positions so that they can oppose the extension of oil production cuts agreed to by the Organization of Petroleum Exporting Countries (OPEC) last year that is supported by Saudia.
According to reports from senior analysts in Dallas, both Iran and Nigeria have good reason to cash in on current high oil prices and both have histories of cheating on OPEC quotas. If this occurs again, not only will oil prices drop, but the warming
relations between Iran and Saudi Arabia could cool as well.
Saudi Arabia and Venezuela first discussed the possibility of extending oil cuts during a Nov. 20-21 conference on foreign involvement in developing Kuwait's oil fields. Since then, Riyadh
and Caracas have been strong advocates of extending OPEC quotas.
Saudi Arabia's economy is vastly dependent on the price of oil, so naturally Riyadh wants prices to remain high throughout 2000. Venezuelan President Hugo Chavez wants oil prices to remain high because he needs to have reliable revenues to fund his populist
social agenda.
Enacted in March 1999, the production cuts are officially set to expire at the end of March. Several other member nations have voiced support for extending the cuts past the March deadline. According to a report by Platt's Oilgram news, on Dec. 2 Algerian
Oil Minister Youcef Yousfi said he saw no reason for OPEC to raise crude oil output in March. He added that he hoped OPEC would be able to formulate a mechanism to "control" the quota system in 2000
and achieve a "real" balance in the market. Also on Dec. 2, Kuwaiti oil minister Sheikh Saud Nasser al-Sabah said an extension of the cuts beyond March was a strong possibility.
On the other hand, Iran and Nigeria have pledged to maintain production cuts until the March 2000 deadline - but they have remained curiously silent on extending the cuts. Qatar's oil minister has indicated that OPEC is privately divided. He told OPEC's official news agency that, "most OPEC countries prefer to extend the current production cut agreement beyond March."
Except for Indonesia, Iran and Nigeria have the most to gain by breaking free of OPEC's limits and boosting production. Both Iran and Nigeria were brought grudgingly into production cuts, in a deal
driven by Saudi Arabia and Venezuela. Both Iran and Nigeria have a history of cheating on OPEC quotas. The Paris-based International Energy Agency (IEA) reported that OPEC supply cuts fell from 91 percent to 87 percent in September, and that notable gains took
place in Nigeria. In April 1999, Iran only made 79 percent of its promised cut, according to the energy newsletter Petroleum Argus.
Most importantly, both countries have discovered new oil reserves and need the revenues with which to develop infrastructure in these
fields. Iran, which is breaking out of its international isolation is trying to attract foreign investment to develop new fields in the south. The current high oil prices - hovering around $24 per barrel - make this an ideal time to boost production and grab a quick windfall of cash. In Nigeria, ethnic unrest has hindered production and helped keep the country's production in line with OPEC's
quotas. The strife can be resolved by the use of force, and Obasanjo has recently indicated he will do so if necessary.
Considering Iran and Nigeria's current state of affairs, it is logical that Khatami's invitation to Obasanjo was actually extended so that the two can forge a joint front in the upcoming negotiations on OPEC quotas. This would pit Iran and Nigeria
against Saudi Arabia and Venezuela. In March, if Iran and Nigeria decide to capitalize on high prices and flood the market despite an extension of OPEC quotas, the price of oil will fall significantly.
As significantly, such an event will have an impact on political relationships in the Persian Gulf. Relations have warmed recently between the Gulf's two most important regional powers, Iran and Saudi Arabia. But over-production by Iran and falling oil prices
would strike a significant blow against Saudi Arabia's oil dependent economy. Riyadh might perceive this as an Iranian attempt to gain leverage in the relationship and ties would promptly cool. |
