Saudi Arabia persuades Iran and OPEC to agree increase in oil production

Sunday, 24 Jun, 2018

The countries of the OPEC cartel agreed on Friday to pump 1 million barrels more crude oil per day, a move that should help contain the recent rise in global energy prices.

Unlike Iran, both Russian Federation and Saudi Arabia now have ample room to increase production, analysts say.

After an OPEC meeting in Vienna, Emirati Energy Minister Suhail al-Mazrouei said the cartel made a decision to fully comply with its existing production ceiling.

Falih said the overwhelming majority of producers had recommended raising output by 1 million bpd., gradually and on a pro-rata basis.

Joe McMonigle, an analyst with Hedgeye who is in Vienna to observe the OPEC proceedings, said he doubts the producer group would approve any language on sanctions.

USA drillers cut the number of rigs drilling for oil by 1 to 862, the first cut in 12 weeks, according to a weekly report from GE's Baker Hughes division. Venezuela's production has dropped amid domestic political instability.

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. The rig count is a leading indicator of production.

Former Exxon Arabian Gulf President Jerry Bailey on the reports that China may stop purchasing US oil.

"Longer term, this is a bit of a win for consumers", said Jamie Webster, director of Boston Consulting Group's Center for Energy Impact.

But Riyadh, which cheered Washington's exit from the nuclear pact, is under pressure from Trump to boost output in order to lower oil prices ahead of November's midterm elections.

"Of course we will have an agreement" at the meeting on Friday, Saudi Energy Minister Khalid Al-Falih tells reporters in his first comments since arriving in Vienna. In practice, its combined output was even less due to production problems.

The Bloomberg headline earlier says that OPEC members have come to an agreement on principle for an output increase of 1 million bpd on paper.

Asked whether he supports increasing production, he replied: "Some of the countries are against any increase, and ask them".

OPEC sources said Zanganeh also demanded at the meeting that US sanctions be mentioned in the group's postmeeting communique, as Tehran has blamed the USA measures for causing the recent sharp rise in oil prices. Trump has used Twitter to complain about high oil prices - and blame OPEC - twice since April.

So far there is no indication that Iran and the other members would agree to such a reallocation, although with officials holding extensive talks in the run-up to Friday's Opec meeting, further compromise could be made. "Need to keep prices down!" Effective global spare capacity-which can be brought online quickly-is now at only 2 Mbd, according to EIA, similar to levels seen in 2008 when prices reached their all-time highs.

He said that there are "many, many options. and we will settle to one of those options".

There are other considerations than dollars and rubles.

Zanganeh said that Iran would try to maintain its export levels in the face of U.S. sanctions.