OPEC+ Gives Final Sign Off to Oil-Supply Boost
OPEC and its allies gave the final sign-off to an oil-production increase, sealing a victory for Saudi Arabia and Russia.
Major producers outside the Organisation of Petroleum Exporting Countries — including Mexico and Kazakhstan — met ministers from the cartel on the 23rd June and endorsed a nominal output increase of one million barrels a day, said Ecuador’s Minister of Hydrocarbons Carlos Perez.
In real terms, that would add 600,000 to 700,000 barrels a day of crude to the market over about six months, said Oman’s Oil Minister Mohammed Al Rumhy.
The OPEC agreement, reached after a last-minute compromise with Iran, was a fudge in the time-honoured tradition of the group, committing to boost output without saying which countries would increase or by how much. The deal is a win for Saudi Arabia and Russia, which were the first members to suggest an increase and hold the most spare capacity.
They now have the flexibility to respond to disruptions and moderate prices at a time when US sanctions on Iran and Venezuela threaten to throw the oil market into turmoil.
The terms of the deal were rather convoluted. The group’s agreed production increase of one million barrels a day was described as “nominal” by Saudi Energy Minister Khalid Al-Falih. In reality, the accord will add a smaller amount of oil to the market because a number of countries are unable to raise their output.
No Specifics
The agreement was vague, said one delegate. It did not detail how the production increase would be split between OPEC and non-OPEC nations, Mr Perez said. Angola’s Minister of Petroleum Diamantino Azevedo said the group had agreed the principles of distribution.
On the 22nd June, every minister seemed to have his own interpretation of what the hike meant for the market. Iran saw no more than 500,000 additional barrels a day, Nigeria predicted 700,000 and Iraq said it could be as much as 800,000.
The official communiques from both meetings did not mention specifics, instead pledging that the group would focus on restoring its output cuts to the level originally agreed in 2016.
Some traders were far from confident that such an agreement would meet the multiple challenges OPEC faces. The situation in Venezuela is volatile, with a wide range of predictions of how much further its production could slump as its industry unravels. There are also growing signs that the renewed US sanctions on Iran could have a larger impact than the one million-barrel-a-day reduction in exports seen in 2012.
Iran does not believe its customers will get waivers from the US government that would allow them to continue crude purchases, Oil Minister Bijan Namdar Zanganeh said. American officials are said to have asked Japan to halt oil imports from Iran completely, going beyond the cuts demanded during the Obama-era sanctions.
Crude prices surged on the 22nd June following the vaguely worded OPEC agreement. West Texas Intermediate crude jumped 4.6 percent to US$68.58 a barrel, the biggest gain in six months.
President Trump, whose tweets played a part in prompting Saudi Arabia to push for a production increase, indicated on the 22nd June that he would be watching the progress of their new agreement closely.
“Hope OPEC will increase output substantially,” he said on Twitter. “Need to keep prices down!”
Source: Rigzone