OPEC agrees to increase oil production

24 June, 2018, 23:32 | Author: Barbara Daniel
  • Support for increase which had been proposed by Saudi Arabia against objections from Iran was unanimous

Saturday's accord, in which non-OPEC countries ratified the previous day's deal, dropped the pledge that the 1 million barrel-a-day increase should be shared proportionally among members, opening the way for the full volume to flow, Al-Falih said.

OPEC is not expected to actually release a hard target, but the figures align with comments from ministers that the group will strive to stop overshooting its 18-month-old deal to keep 1.8 million bpd off the market.

Current OPEC Chairman, the UAE Energy Minister Suhail Mohamed Al Mazrouei, told reporters after the meeting that the increase agreed upon is "a little bit less than 1 million barrels" over OPEC's current output. Brent oil prices were up 1.9 percent on Friday as the output boost had been largely priced in and was seen as modest.

Because the cartel had been producing below that ceiling, that effectively means an increase in production. And after OPEC's deal on Friday, Trump tweeted: "Hope OPEC will increase output substantially".

OPEC's decision to maintain 100 per cent conformity, as compared to 152 per cent observed in May, comes as a relief for India which had been raising concerns at domestic and global forum over increased market volatility and high crude prices. For example, if OPEC were to plug its production shortfall (+0.7 mb/d) and Russian Federation add 0.2 mb/d for the whole of 2H18, we would only expect a slim market surplus of 0.1 mb/d yet this would require an unprecedented increase in core-OPEC and Russian Federation production and would leave the market with little remaining spare capacity.

Al-Falih also said the OPEC+ Joint Ministerial Monitoring Committee, which has overseen the group's supply cuts, will play a key role in managing how production is increased.

But countries like Iran, Iraq, and Venezuela said they were unable to raise output soon and their share would be unfairly reallocated to other producers. This is due to the political crises in Venezuela and Libya, as well as Iran's preparation to face the effects of renewed United States sanctions.

President Trump, however, is much more of a wild card, and could voice his support for the bill especially if oil prices continue to top to the $80 levels. Riyadh indicated that countries capable of increasing its production can compensate what other countries can't reach, such as Venezuela.

Saudi Arabia's successful bid to persuade its rival Iran to ease curbs on oil extraction has produced a surge in the West Texas Intermediate (WTI) oil price to its highest since November 2016 to above $69/bbl.

Overall, Crude oil prices may show weakness through the second half of 2018, with the prospect of OPEC production growth mostly influencing market psyche into a "Bearish" mode.

Iran has objected to having members with additional capacity such as Saudi Arabia fill Venezuelan output gaps.

Yesterday's agreement was a fudge in the time-honoured tradition of Opec, committing to boost output without saying which countries would increase or by how much.

The vague language may help to preserve the hard-won unity of the group of 24 oil producers, whose cooperation ended a three-year price slump.

M K Surana, Chairman at Managing Director at Hindustan Petroleum (HPCL), the country's third largest fuel retailer told ETEnergyWorld that any increased supply will be good for India as it will bring some stability in crude oil prices. There needs to be a quick reaction mechanism to deal with the vagaries of the markets.

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