(Persia Digest) – A Professor of Economics in the US believes: “It is unreasonable to expect that a big drop in Iranian oil exports would have no effect on the price of oil, and indeed anticipation of the production drop from Iran was in my opinion one factor contributing to a higher price of oil earlier this year.”
OPEC members agreed on Friday to cut production by 800 thousand bpd as from January 2019. Iran was exempted from oil cuts. The Iranian Minister of Petroleum said he was happy with the results. Zangeneh had said earlier that Iran would not participate in oil cut talks for as long as it was sanctioned. Non-OPEC members also agreed to cut their production by 400 thousand bpd.
Persia Digest (PD) has conducted a short interview on the above with Professor James Hamilton, Department of Economics, University of California, San Diego.
How will this decision by OPEC members affect oil prices on the global markets?
Recent movements in oil prices are largely being driven by events out of the control of OPEC. The recent collapse in oil prices came at the same time as dramatic drops in stock prices and interest rates around the world. I think the biggest factor driving these is the outcome of trade negotiations and the economic health of China. If the Chinese economy stumbles, nothing OPEC could realistically do will keep the price of oil up. If China gets back to strong growth, I expect oil prices to go back up.
Keeping in mind Donald Trump’s plans to cut Iranian oil exports to zero while preventing a spike in prices, can the recent decision by OPEC be a defeat for this US policy?
It is unreasonable to expect that a big drop in Iranian oil exports would have no effect on the price of oil, and indeed anticipation of the production drop from Iran was in my opinion one factor contributing to a higher price of oil earlier this year. But again, world events beyond the control of both OPEC and the U.S. president are more than enough to offset the effects of a drop in Iranian production.
How significant is Iran’s achievement at the OPEC meeting (exemption from oil production cuts) for this country?
It would have been unreasonable for OPEC to take any other course. In the case of countries like Iran where geopolitical forces are so important, OPEC cannot apply the same expectations for Iran as for other countries that enjoy more freedom in making their production decisions.
Will the recent decisions made by OPEC make it more difficult to find a replacement for Iranian oil exports?
Yes, but again I think demand factors rather than supply are the main story at the moment.
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