Oil prices up nearly 3 pct as OPEC agrees to raise output

Andrew Cummings
June 23, 2018

"Essner is betting that the Vienna meeting will yield an agreement to boost production by 500,000 to 800,000 barrels a day, far below the 1.5 million barrel figure floated recently by Russia's oil minister, Alexander Novak".

The pair is able to increase their production significantly and the countries are understood to be eager to defend their share of the global market against the return of United States shale oil rigs.

Given the production restraints in some countries, the one million barrels per day proposal would in reality end up adding several hundred thousand barrels to the market. Iran will struggle to increase production, meaning it could lose market share and revenue to its rivals.

OPEC takes its decisions by unanimity, so if Iran were to wield its veto Saudi Arabia would be left only with the option of assembling a coalition of willing countries to bypass Tehran's opposition.

Saudi Arabia has enough spare capacity to offset those losses and keep a lid on prices, but Energy Minister Khalid Al-Falih acknowledged on Thursday that such a move isn't politically palatable for his fellow OPEC members.

For OPEC, over-compliance with its oil supply-cutting deal is a nice problem to have. The institution agreed production caps in November 2016 targeting 32.5m barrels per day following a crash in global oil prices.

Iran's Zanganeh has accused Trump of trying to politicise OPEC and said it was U.S. sanctions on Iran and Venezuela that had helped push up prices. "How much oil do we need?. around 1 million (barrels per day, bpd) probably".

On Friday, Zanganeh said OPEC would change the structure of the current deal, but declined to elaborate.

As the Organisation of Petroleum-Exporting Countries (OPEC) faces a rift within, ministers of its member countries have gathered in Vienna, the group's headquarters, to discuss the issue of global oil output.

At the Multi Commodity Exchange, crude oil for delivery in July rose Rs 17 or 0.38 per cent to Rs 4,513 per barrel in a business turnover of 1,412 lots.

"Saudi Arabia and Russian Federation continued to push for a relaxation in production constraints, going against many other members wishes", ANZ bank said on Wednesday. U.S. President Donald Trump has been calling publicly for the cartel to help lower prices.

OPEC sources have said that if a 1 million bpd output hike were approved, Saudi Arabia would add about 0.25-0.3 million bpd to supply. "This view leads to a small-implied stock draw in Q3 2018, followed by an inventory build in Q4 2018 which is expected to weaken prices heading into 2019 when we see an oversupply for the year", Hittle said.

Analysts have called this week's OPEC talks the most fractious and politically charged in years.

"We've seen investments start flowing back, certainly it's flowing back in the (United States) with short-cycle oil, the shale".

OPEC and non-OPEC producers will meet on Saturday to iron out details of the pact and then again in September to review the deal.

"OPEC is an independent organization, not an organization to receive instruction from President Trump", Zanganeh said on Tuesday.

Other reports by iNewsToday