OPEC agrees modest hike in oil supply after Saudi and Iran compromise

Ivan Schwartz
June 23, 2018

Saudi Energy Minister Khalid Al-Falih told reporters after the meeting that the deal was to make a "nominal" increase of 1 million barrels per day, Bloomberg News reported.

The rise in oil prices might however only give a temporary respite to investors. Iran said the real increase could amount to as little as 500,000 bpd. "Need to keep prices down!"

By avoiding setting individual country targets, the deal appears to give Saudi Arabia the leeway to produce more than its official OPEC target and fill the gap left by those like Venezuela who can not pump enough to meet their official allocation. U.S. President Donald Trump has been calling publicly for the cartel to help lower prices.

Oil prices have been on a roller-coaster ride over the last few years, with the worldwide marker, Brent, trading above $100 a barrel for several years until 2014, dropping to nearly $26 in 2016 and then recovering to over $80 last month.

OPEC agreed on Friday on a modest increase in oil production from next month after its leader Saudi Arabia persuaded arch-rival Iran to cooperate, following calls from major consumers to curb rising fuel costs.

The contentious meeting took place under the shadow of vituperation from U.S. President Donald Trump, who anxious that high oil and gasoline prices would be politically painful ahead of midterm elections later this year.

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While OPEC avoided the disastrous outcome of ending the week without a deal, it left the oil market somewhat disappointed by declining to announce a hard figure. OPEC reportedly expects to boost production by 600,000 barrels per day.

"We already mobilized the Aramco machinery, before coming to Vienna, pre-empting this meeting", Falih said, referring to the Saudi state oil company.

Also, others with high production levels will not be allowed to fill the gap.

Instead the producers are seeking to cut no deeper than 1.2 million bpd, the target they set in November 2016. The measure has helped rebalance the market in the past 18 months and lifted oil to around $75 per barrel from as low as $27 in 2016. Venezuela will raise its production when it can. The figure has been inflated by a plunge in supplies from almost bankrupt Venezuela.

He also said OPEC could hold an extraordinary meeting before its next formal talks due on December 3 or adjust deliveries in September, when its monitoring committee meets, if global oil supply fell further because of sanctions on Iran.

Other reports by GizPress

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