Bloomberg

Tehran

The “shock therapy” of a steep drop in crude prices, which have fallen to a five-year low, is no solution for Opec’s loss of market share to US shale producers, Iran’s Oil Minister Bijan Namdar Zanganeh said.

US benchmark West Texas Intermediate crude declined 10% after the Organisation of Petroleum Exporting Countries decided on November 27 to keep its production target unchanged at 30mn barrels a day. Prices at this lower level are no guarantee of a significant reduction in US shale output, Zanganeh said in an interview in Tehran on November 28, after arriving from the Opec meeting in Vienna.

“High prices are a disadvantage to Opec’s market share,” he said. “If you want to increase your share, you have to reduce prices, but you can’t do it through ‘shock therapy’ over the course of three months if you want to change everything.”

Opec, which supplies about 40% of the world’s oil, resisted calls from members including Venezuela and Iran to reduce its collective output to stem falling prices. US production, driven by a boom in fracking for shale oil, has risen to the highest level in three decades, adding to a global surplus that Venezuela estimated last week at 2mn barrels a day. Demand for Opec’s crude will shrink as US supply expands, eroding the group’s share of the global market to the smallest in more than 25 years, its own forecasts showed.

West Texas Intermediate fell as much as $2.43 to $63.72 a barrel in electronic trading on the New York Mercantile Exchange. That’s the lowest intraday price since July 2009. Brent crude, down $1.24 at $68.91 in London today, has lost 38% this year.

Most of Opec’s 12 members wanted to cut 1.5mn barrels, or 5%, from their collective target, with non- Opec producers contributing an additional 500,000 barrels in reductions, according to Zanganeh’s account of the group’s meeting in the Austrian capital. Saudi Arabia’s Oil Minister Ali al-Naimi cited the threat from US shale as the main justification for keeping the same output limit, Zanganeh said.

Competition from US shale oil, some of which costs more to produce per barrel than crude from Opec’s conventional deposits, may not ease even at current, lower prices, he said.

“These prices that we see are not a sufficient enough reason yet to say that definitely, within the next four or five months ahead, shale oil output will drop by 1mn or 2mn” barrels a day, according to Zanganeh. “There are no facts or figures to say that shale production would definitely decrease.”

Opec needs to handle the issues of market share and tumbling prices “with caution and gradually,” he said.

Even as Zanganeh “wanted prices to be protected,” he said he doesn’t want internal discord to damage the group. He told reporters in Vienna immediately after last week’s meeting that he was “not angry” with its decision, even if it was “not in line with what we wanted.”

Iran can boost both its exports and production of oil by 1mn barrels a day within two months, if international sanctions on the country’s economy and oil industry are removed, according to Zanganeh. The US and European Union have imposed sanctions on Iran over its nuclear program. Lower oil prices would make no difference for such increases, he said.