Oil prices spike sharply after OPEC fails to deliver

Sunday, 24 Jun, 2018

And despite the push for wider production growth of 1 million barrels per day (bpd), actual output increases of around 600,000bpd are being forecasted due to the fact other OPEC member states can not grow their supplies.

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.

Crude oil prices were soaring in early Friday trading after OPEC apparently disappointed with the terms of a consensus agreement on production. The move eased concerns among the member countries about tightening supply and the potential for a price spike, but it also lifted the stock prices of US oil producers, which have.

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 measure had helped rebalance the market in the past 18 months and lifted oil LCOc1 to around $75 per barrel from as low as $27 in 2016.

But Saudi Arabia has the powerful backing of Russian Federation, which is facing mounting calls from domestic oil firms to end the cutbacks so they can cash in on the higher oil prices.

"Hope OPEC will increase output substantially", Trump said on Twitter. The group said compliance reached 152 percent in May 2018, which means OPEC was cutting about 600,000 bpd more than it intended. Iran even now has the opportunity to increase its production if it has customers and capacity, before Trump's timetable to decide on Iran's oil embargo in November.

Returning to Friday's output agreement, the official communique was a classic piece of OPEC-speak - short on figures and something that everyone could claim as a victory.

Leading the decliners among tech was open source software provider Red Hat Inc, which tumbled 14.2 percent after its current-quarter and full-year revenue missed analysts' estimates due to a strengthening dollar.

Production levels from participating members put compliance at more than 100 percent, though some of that is attributed to Venezuela.

Iran complained that the market shortage was a ploy by Saudi Arabia to take Iran's share as soon as the oil embargo was implemented by President Trump. United Arab Emirates Energy Minister Suhail Al Mazrouei gave similar assurances.

"Both Saudi and Iran can show that they won", an OPEC delegate said.

Liberty Oilfield Services Chairman Chris Wright on how OPEC ministers agreed to raise oil production.

"With a committed production adjustment over the 500 days till mid-May this year, the stock overhang has been brought down to nearly zero", al-Sada told S&P Global Platts ahead of the Opec meeting in Vienna.

The meeting of the ministerial monitoring committee of OPEC+, which usually proceeds from the recommendations and future scenarios of the technical committee, was held on June 21 in Vienna.