Oil price tumbled following the squabbles between Saudi Arabia and Iran that has threatened to thwart negotiations aimed at cutting production by the members of the Organisation of Petroleum Exporting Countries, OPEC.
Saudi Arabia produces up to 10.7m barrels per day (bpd), however, sources at the cartel said it had threatened to open the taps much further.
“The Saudis have threatened to raise their production to 11m bpd and even 12m bpd, bringing oil prices down, and to withdraw from the meeting,” one OPEC source told Reuters.
The cost of a barrel of Brent crude dropped to $45.02 before recovering to $45.42, down 2%, after Opec’s secretary general, Mohammed Barkindo, denied Saudi Arabia had made any threats.
Reports of a row come with Opec countries due to meet on 30 November to discuss curbing supply to boost prices, as they wrestle with a global oil glut.
They met at Opec’s Vienna headquarters last month to finalise the terms of an output cut from 34m bpd to as low as 32.5m bpd, but failed to agree quotas for each country.
“There’s a gang of four or five who don’t want any cuts at all, for all sorts of reasons. They [Saudi Arabia] are trying to whip the others into line and I think Iran will come into line,” said Malcolm Graham-Wood of advisory firm Hydrocarbon Capital.
“It’s a question of how they decide to word it so that everyone comes out looking politically sensible. There’s a lot of saving of face within Opec so that people don’t look stupid.”
Saudi Arabia, which has previously flooded the markets with cheap crude in a failed attempt to kill off the US shale gas boom, can afford to play chicken with Iran over prices. This is because Iran’s cost of production is higher, meaning it earns less per barrel, and it is still ramping up output after economic sanctions against it were lifted this year.
