In shift, OPEC price hawk Iran says can live with lower oil

Iran normally calls for supply cuts to support prices

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Iran, in a change of tack, is saying it can live with lower oil prices, moving closer to the views of Saudi Arabia and other Gulf OPEC members and reducing the likelihood of any collective cut in OPEC output to support prices.

OPEC's traditionally second-largest producer is normally among the first members of the Organization of the Petroleum Exporting Countries to call for supply cuts to support prices. Iran needs relatively high oil prices to balance its budget, analysts say.

But a drop in oil prices - which fell towards $86 a barrel on Tuesday, the lowest since 2010 - did not prompt calls for cuts in OPEC supply.

"At this time of year, it is normal to have some price weakness," a source familiar with Iran's oil policy told Reuters. "And oil-price weakness has been compensated for by the appreciation of the dollar."

OPEC's Gulf Arab producers are at ease with lower prices. Saudi Arabia has been quietly telling market participants it is comfortable with lower oil prices, a shift in policy that may be aimed at slowing the expansion of rival producers including those riding the U.S. shale oil boom.

Another core Gulf OPEC producer, Kuwait, said on Sunday OPEC was unlikely to cut production.

Western sanctions have drastically reduced Iranian oil output and exports and have limited its ability to participate in output cuts at a time when Tehran's energy-dependent economy is suffering from much lower oil revenues.

In the past, OPEC countries have cited a weakening dollar as a reason to justify higher oil prices, which erode the purchasing power of dollar-based oil revenues.

But the dollar is close to a four-year high against a basket of currencies, helping offset the drop in prices.

"I am not worried at all," a second source familiar with Iranian thinking said recently, when asked about the drop in oil prices.

OPEC meets to review policy on Nov. 27 and such comments add to the sense that a collective cutback to support prices - which would be OPEC's first since the 2008 financial crisis - looks unlikely - at least for now.

Iran's deputy oil minister said on Tuesday the recent drop in oil prices is short-lived, the oil ministry's news agency Shana reported.

Rokneddin Javadi, who is also the managing-director of the National Iranian Oil Company (NIOC), asked if the fall in oil prices would harm Iran's budget, said: "I don't think so."

The IMF has estimated that to achieve a zero fiscal balance Iran needs oil prices to be $130 a barrel, the second-highest after Libya of eight of OPEC's 12 members it looked at.

Iran, traditionally the No. 2 producer in OPEC, was overtaken by Iraq in 2012 after European sanctions on Iran forced it to reduce exports and as Iraq expanded supplies with the help of foreign oil companies.