OPEC need to cut off ‘at least 700,000 barrels per day’

The Organisation of Petroleum Exporting Countries (OPEC) need production cut of at least 700,000 barrels per day to bring the market back into balance.

The physical market, according to analysts, has shifted back to oversupply because of surging OPEC output, with the most material increases driven by improving security conditions in Libya and Nigeria. OPEC is now managing more output heading into its general meeting on November 30 than it was when action was first broached in August.

The return of conflict barrels, and subsequent oversupply, will likely weigh on oil prices unless OPEC achieves a cut at its next meeting.

Meanwhile, OPEC is moving closer towards finalising this month its first deal since 2008 to limit oil output, with most members prepared to offer Iran significant flexibility on production volumes, ministers and sources said.

Iran has been the main stumbling block for such a deal because Tehran wants exemptions as it tries to regain oil market share after the easing of Western sanctions in January.

Iran’s rival Saudi Arabia, the biggest producer in the OPEC, has argued Iran’s output has peaked and it should not be granted major concessions.

Last wek, several OPEC oil ministers including Saudi Arabia’s Khalid al-Falih met in Doha on the sidelines of a gas forum. Iranian officials attended the gathering although Minister Bijan Zanganeh did not come.

At the meeting, OPEC member countries proposed Iran cap its oil output at 3.92 million barrels per day (bpd). Iran has previously said it would accept a freeze at between 4.0 and 4.2 million bpd.

Gulf OPEC sources have said they wanted Iran to cap output at around 3.6-3.7 million bpd – the volume the Islamic Republic is currently producing, according to OPEC estimates. Iran’s OPEC governor, who attended the talks, said he was optimistic that the producer group would reach a deal when it gathers formally in Vienna on November 30.

If OPEC reaches a deal on November 30, it may also draw support from non-OPEC members including Russia, which promised to cooperate but so far has refrained from any firm commitment.

Russian Energy Minister Alexander Novak participated in last week’s meeting and said he thought OPEC was moving closer to a deal. If an agreement were reached, Russia was prepared to join and cap output for six months or longer, Novak said.