OPEC moves toward raising oil supply as Iran softens positions

Cornelia Mascio
Giugno 23, 2018

Saudi Arabia and Russian Federation have been pushing for the increase but a hard meeting was expected today after Iranian Oil Minister Bijan Zanganeh said on Thursday he did not think an agreement could be reached.

As tensions mounted, the Iranian and Saudi ministers huddled for bilateral talks on Friday morning, holding up the start of the closely watched OPEC meeting. Brent crude, the global oil benchmark, was down 1.6% on the day, at $73.54 a barrel, on London's Intercontinental Exchange.

One way of easing the crunch would be for OPEC to come back into line with the existing agreement, but working out the details would be tricky because some countries - such as Venezuela - can't pump more.

But the cushion of spare capacity is already low and will shrink further as OPEC boosts its output, leaving the market without much capacity to absorb further disruptions.

The United States, China and India had been pushing for a rise in production to avert a supply shortage later in the year.

For OPEC, over-compliance with its oil supply-cutting deal is a nice problem to have.

Oil prices rose by more than 1 percent in early Asian trading on Friday, pushed up by uncertainty over whether OPEC would manage to agree a production increase at a meeting in Vienna later in the day.

Zanganeh, speaking to reporters on the sidelines of a Vienna seminar earlier this week, accused Trump of trying to politicize OPEC and said it was United States sanctions on Iran and Venezuela that had helped push up prices.

Trump slapped fresh sanctions on Tehran in May and market watchers expect Iran's output to drop by a third by the end of 2018.

After sitting down with several counterparts, Iranian Minister Bijan Namdar Zanganeh said he was optimistic about the outcome of the OPEC meeting, a marked contrast to comments on Tuesday when he said a deal was unlikely.

Countries in the OPEC oil cartel have agreed to a new oil output level that effectively increases production by nearly 1 million barrels per day.

Tehran had bridled at complaints on Twitter by U.S. president Donald Trump that the cartel was artificially inflating oil prices, which touched $80 a barrel last month.

But production problems in Venezuela and Libya have seen about 2.8 million barrels removed from daily global supply.

Market leaders divide on the decision of increasing oil output.

Oil prices affect everything connected with a modern economy, from movement of goods and services, to the amount of disposable incomes for ordinary consumers.

There will be a deficit in the second half of this year of 1.6-1.8 million barrels.

"We want to prevent the shortage and the squeeze that we saw in 2007-2008, we saw it again a few years ago as a result of lack of investment". There is disagreement within OPEC about the scale of the increase, suggesting supply could remain ample.

The planned sale of 5 percent of Aramco-in what would likely be the world's largest IPO ever-could bring Saudi Arabia US$100 billion if Saudi officials' valuation of the company at US$2 trillion stands.

"We need to release supply to the market", Energy Minister Khalid al-Falih said, according to Reuters.

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