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Iran Rejects Compromise as OPEC Heads for Battle in Vienna

Bloomberg logoBloomberg 6/19/2018 Javier Blas

A crew member works in the engine room aboard the oil tanker 'Devon' during preparations for sailing towards Kharq Island to pick up crude oil for export in Bandar Abbas, Iran, on Friday, March 23, 2018. Geopolitical risk is creeping back into the crude oil market.© Bloomberg   (Bloomberg) -- Iran rejected a potential compromise at OPEC, saying that it won’t support even a small increase in oil production when the cartel meets on Friday.

The comments by Bijan Namdar Zanganeh, the Iranian oil minister, are the strongest indication that the meeting of the Organisation of Petroleum Exporting Countries could end in a major disarray for the first time since 2011.

"I don’t believe in this meeting we can reach an agreement," Zanganeh told reporters on his arrival to Vienna for the meeting.

OPEC takes its decision by unanimity, so the veto threat may leave Saudi Arabia with only the option of assembling a coalition of willing countries to bypass Tehran’s negative. Saudi Arabia has signaled it favors a modest production hike to ease anxiety among oil consumers. U.S President Donald Trump has tweeted twice in the last two months complaining about high oil prices and accusing OPEC of being "at it again."

"Saudi Arabia will try to reach consensus, but if that fails I think that Riyadh won’t be constrained and they will put the barrels in the market that they deem appropriate," said Helima Croft, chief commodities strategist at RBC Capital Market LLC.

Trump Tweets

The tweets have irritated several OPEC countries, notably Iran.

"OPEC is an independent organisation not an organisation to receive instruction from President Trump," Zanganeh said. "OPEC is not part of the Department of Energy of the United States."

Zanganeh said that there wasn’t a need now to increase by 300,000 to 600,000 barrels a day -- a potential output compromise plan mulled by some OPEC officials. In a sign that the Iranian delegation is bracing itself for a no-deal scenario, Zanganeh announced he planned to leave Vienna on Friday, before the OPEC meeting with its non-OPEC allies on Saturday. 

Russia, which joined OPEC in cutting production nearly two years ago, is pushing for a large output hike of 1.5 million barrels a day. When OPEC and its non-OPEC allies agreed in late 2016 to reduce output, they took 1.8 million barrels a day from the market.

--With assistance from Grant Smith and Golnar Motevalli.

©2018 Bloomberg L.P.

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