OPEC Big Step for Quota Revival

“In the Algeria meeting, OPEC members took a big step towards revival of the system to devise production quota,” Assali said in an interview with Shana.

“Though Iran was made an exception to halt growth in the production or reduce it, OPEC managed to reach a considerable agreement and after several years it made a decision again to manage oil supply around fair and logical prices,” he added.

Undoubtedly, the consultation of the Minister of Petroleum Bijan Zanganeh and authorities, including Iran’s revered envoy to the International Energy Forum (IEF) and OPEC in weeks and days before the OPEC Consultative Ministerial Meeting and during the meeting had been influential in the decision, said Assali.

He said, “The speech of Mr. Zanganeh at the conference was noteworthy. While supporting the OPEC moves to stabilize oil market, he announced that he was afraid certain groups had lowered oil prices to a level which has hampered interests of other producers.”

The senior energy economy expert then commented on the mechanism of lowering OPEC production and said, “Regularly, the amount each country will reduce the production will be in tandem with the country’s share out of the total OPEC production.”

He said for instance, if 700,000 barrels is to be cut out of the total OPEC production, the country whose output accounts for 30 percent of the OPEC production, would hence supply about 210,000 barrels and a country having less than two percent share out of the total production, will have to cut about 5,000 barrels out of its production. 

Asked whether one can be hopeful of revival of the quota system in the OPEC regular session on November 30, Assali, who is an advisor to the High Institute of Education and Research on Management and Planning Department of the Presidential Office, said management of oil supply and stabilization of markets around fair and logical prices will not be possible unless an effective quota system is in force.

“Since OPEC has turned again to the strategy of management of oil supply, any fall in the supply will be possible through specification of the amount of fall in production of each of the member countries.”

The official said that practically a big step has been taken towards revival of the OPEC production rationing system, adding at any rate, specification of the quota, which will be welcomed by the members, needs stabilization of production by all the members and under present conditions, certain members have announced plans for considerable increase in the production, it will naturally raise their share out of total OPEC production.

He predicted that agreement on the production quota will be reached after lengthy discussions and considering different formulas and substitute scenarios, so possibility of agreement on a favorable quota system in November session is very low.

“However, if OPEC leaves market for its own so much so that production will increase and prices will continue falling on the hope that Shale oil producers will suffer and abandon the market, what happened in the past three years will be repeated and the members will lose billions of dollars of their petrodollars.”

What happened in the past three years is the result of OPEC passivity before oil market developments, said Assali, adding that if OPEC acts like an organization which is to maximize interests of its members in the long run and tries to guarantee constant and fixed income for them, it will have to remain integrated and be more active, while following an appropriate mechanism to manage oil market developments.

He went on to say that for instance, to take an adequate stance against the developing oil market, the OPEC secretariat should regularly calculate the coefficient of price elasticity of  supply of its oil rivals on the one hand and the coefficient of price elasticity of the demand for OPEC oil on the other hand, taking them into consideration in the decisions made in its conferences. 

He noted that a right estimation of the coefficient of elasticity of price for shale oil supply and of that of other non-OPEC producers reveal that changes in oil prices will result in which changes in the supply of the non-OPEC producers. “For instance, 10 percent increase in oil price for a relative long period of time will result in which percentage increase in the oil supply of the non-OPEC members.”

He asserted that on the other hand, the estimate of the coefficient of price elasticity of demand for the OPEC oil indicates how many million barrels per day will the demand for OPEC oil will be. 

The official said through smart monitoring of the oil market and constant estimation of the important parameter, the OPEC secretariat can offer necessary recommendations to the OPEC petroleum and energy ministers to make appropriate decisions to stabilize oil market around fair prices, while guaranteeing OPEC share in the oil market.

To this end, Iran had earlier presented to the OPEC secretariat an appropriate strategy to stabilize the oil market around fair prices, said Assali, concluding that however, evidently implementation of the mechanism will be possible in light of consensus of all the OPEC members to achieve the goals of the strategy, let’s say maximizing income of the OPEC members out of long-term oil exports.

Translated by Behnaz H. Gholipour