What to Expect From the OPEC Meeting

Ivan Schwartz
June 22, 2018

Iranian Oil Minister Bijan Zanganeh said on Thursday he still believes OPEC can not reach a compromise decision on raising oil output at its meeting the following day.

The 14-nation OPEC and its 10 non-member partner nations, known as OPEC+, are in the midst of an agreement that runs through the end of the year, under which they have trimmed production by 1.8 million barrels per day.

Regional rival Iran however is fiercely opposed to unwinding the agreed production curbs, as its oil industry is bracing for fresh sanctions following US President Donald Trump's decision to quit the global nuclear pact.

"An agreement was reached yesterday to release the equivalent of about 1m barrels to the market; it will be distributed pro rata", Al-Falih said on Friday, of an Opec committee meeting on Thursday. The cartel would be the biggest beneficiary of possible Chinese tariffs on U.S. oil imports, as these could help it regain market share, OPEC sources and industry officials tell Reuters. The measure has helped rebalance the market in the past 18 months and lifted oil to around $74 per barrel from as low as $27 in 2016.

But on Wednesday, Iranian Oil Minister Bijan Zanganeh said OPEC members that had over delivered on cuts in recent months should comply with agreed quotas.

In an historic agreement in late 2016 the OPEC+ group of 24 nations made a decision to cut 1.8 million barrels of production to revive the oil market from its biggest slump in a generation.

Brent crude was up 50 cents at 75.58 dollars a barrel by 1335 GMT.

Opec has a history of hard meetings as well as clashes between Iran and Saudi Arabia.

Saudi Energy Minister Khalid al-Falih had earlier signalled a compromise could be in the works.

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A decision to increase output could be taken even with Iran refusing to sign up, as has happened before in OPEC.

After almost two years of relative unity, the talks in Vienna this week have found Opec divided.

President Trump, who fears higher gas prices, has been putting pressure on OPEC to raise production.

"We want to prevent the shortage and the squeeze that we saw in 2007-08", Falih said, referring to a time when shortages sent premium-crude-oil prices soaring to an unprecedented $150 per barrel and ushered in a major boom-bust cycle that devastated the oil sector for a decade.

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

Zangeneh also said on Friday OPEC would change the structure of the current deal, but did not elaborate.

Analysts expect the group will consider an increase of somewhere around 1 million barrels a day.

He acknowledged that a big production hike might be "politically unacceptable" to some OPEC countries and said it was important to be "sensitive" to those concerns.

The US, which rivals Russian Federation and Saudi Arabia for the position of world No.1 oil producer, is not participating in the current supply pact.

Other reports by GizPress

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