Oil falls as OPEC nears deal to raise production

22 June, 2018, 16:16 | Author: Kathy Ellis
  • Saudi Arabia’s energy minister may face his toughest test when OPEC members meet. Bloomberg’s Heesu Lee reports

Analysts expect the group to discuss an increase in production of about 1 million barrels a day, ending the output cut agreed on in 2016.

OPEC is up for a tough meeting in Vienna this week after the leaders of the two groups of the OPEC/NOPEC production cuts-Saudi Arabia and Russia-have signaled that they are willing to boost production to offset what is sure to be further supply disruptions, mostly from Venezuela's collapsing oil industry and from a potential decline in Iran's oil exports in view of the returning USA sanctions.

The Organization of the Petroleum Exporting Countries meets on Friday to decide output policy amid calls from major consumers such as the United States and China to cool down oil prices and support the global economy by producing more crude.

Matt Smith, director of commodity research for ClipperData, says the Saudi oil minister has been signaling that a boost in production is coming.

Both countries would struggle to increase output significantly, as Iran is facing renewed US sanctions that will impact its oil industry and Iraq still has production constraints. "If the U.S. and China continue to retaliate and Saudi Arabia and Russian Federation keep signalling a production increase, that will further weigh on prices". Moscow and Riyadh have made it clear they are in favor of a return to higher production to keep a lid on prices but other OPEC members, notably Iraq and Iran, are against it.

One might think that President Donald Trump would embrace a move that pressures Iran, but the president took to Twitter to voice his displeasure, saying, "Oil prices are too high, OPEC is at it again. Now all countries want to extract more oil and the price of each barrel nearly costs twice as much as on the day of signing the agreement", he explained.

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"Crude oil prices crashed as U.S".

Cohen said the market has already priced in a slight rise in output - say 700,00 to 800,000 barrels per day. Only decline below $60 would be undesirable for market participants.

OPEC is discussing a relatively modest production increase before its meeting in Vienna this week, an attempt to bridge the gap between Russia's push for a big rise and Iran's insistence that no change is needed.

That would be enough to offset the supply losses from Venezuela and Iran foreseen by the International Energy Agency. "The price of $75-80 per barrel is clearly unstable and there is an increasing risk that next summer prices may collapse back to $40-45 per barrel". That crimped the country's ability to export crude, limiting supply and pushing up global prices. The draws alleviated some concerns that surging US domestic production would outstrip demand.

In April-May, oil prices reached their four-year maximum. "We are trying to control the prices", he told.

It is very important for OPEC + to solve the problem of Venezuela. "A meaningful increase in long-haul flows from some of the key OPEC exporters would go a long way in turning the crude tanker market around, especially since it will impact the physical market as well as provide a boost to the all-important market psychology".

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