NEW YORK (
) -- At the upcoming OPEC meeting in Vienna on June 14, members will have a lot to talk about. Oil prices have been dropping like a stone and not only because of the bad economic numbers coming out of Europe and China. There's been also been dissent among the OPEC members, particularly Saudi Arabia and Iran.
Saudi Arabia has telegraphed earlier last month that they would increase production, trying to blunt the effect of an Iranian boycott still slated to go into effect July 1. As Saudi daily production has eclipsed 10 million barrels a day, other OPEC members have also been able to ramp their production unexpectedly. Libyan supply is again close to historic norms, quickly recovering from its civil war of last year and Iraq has been able to aggressively increase production, now up to 2.5 millions barrels a day. The upside of all of this production has been a monthly OPEC output of 31.8 million barrels a day, far above their stated output quota of 30m barrels a day.
|For us here in the U.S., including drivers looking for cheap gas, the likely dissent in the upcoming OPEC meetings will be a good thing.
This is all in spite of a decrease in Iranian production, squeezed slowly and inexorably by economic sanctions and European and Asian customers who are avoiding Iranian crude in expectation of a full boycott.
Continuing negotiations on Iranian nuclear aspirations have blunted worries surrounding imminent military action by the West or Iranian threats to retaliate by shutting the Straits of Hormuz, a major choke point of OPEC exports.
Put this all together and you have a futures market that has shed more than $25 a barrel in the past month, dropping European Brent prices under $100 a barrel and West Texas Crude here in the U.S. to $83. Iran is feeling the strain of an oil market in freefall more than any other OPEC nation. They will certainly have the most on the line when the cartel meets, as its budget requires an $85 global price to sustain itself.
Although global prices remain above this level, the Iranians have already been forced to negotiate discounted cargos using credit and third-party brokers, priced often in local Yuan and Rupees. There was a fascinating note from hedge fund guru Barton Biggs that all this is part of the master plan of the Saudi royal family -- to destroy the influence of Iranian petrodollars while the window of slowing economies is available. Whether this is true or not, there is certainly reason for the Iranians and Saudis to be extremely uncomfortable with each other this time around in Vienna. The Iranian want their own ex-oil minister to be the new secretary general, but with such rancor between them and the Saudis, it is very unlikely he will be confirmed.
What becomes likely is that the meetings in Vienna will be short and contentious and highly unlikely to bring a consensus of output targets that might be used to strengthen prices. While prices have already come down more than $20, the likely reaction to the meetings should moderate prices further and bring WTI prices under $80 a barrel -- and translate into gas prices for the summer that could get as low as $3.20 a gallon.
For us here in the U.S., the likely dissent in the upcoming OPEC meetings will be a good thing.