Opec allies endorse 1 million bpd rise in oil output

OPEC strikes deal to boost oil production | TheHill
OPEC to raise oil production from July

25 June, 2018

"The only country that can increase production is Saudi Arabia, so its interpretation of the deal is the one that matters", said Ann-Louise Hittle, a veteran OPEC watcher at consultant Wood Mackenzie Ltd. Non-market issues like violence in Libya, sustained political issues in Venezuela, and future sanctions pressure on Iran raise questions about market balance.

Opec agreed with Russian Federation and other oil-producing allies on Saturday to raise output from July, with Saudi Arabia pledging a "measurable" supply boost but giving no specific numbers.

It agreed to boost oil production from July 1, an 11th-hour compromise after Iran initially threatened to veto any supply hike.

Opec and its allies have since a year ago been participating in a pact to cut output by 1.8 million bpd.

The deal gave a tacit green light to Saudi Arabia to produce more than now allowed by Opec as the 14-nation organisation avoided setting individual country targets. This will be accomplished by some nations such as Saudi Arabia effectively rolling back deeper-than-intended cuts. And after OPEC's deal on Friday, Trump tweeted: "Hope OPEC will increase output substantially". In an acknowledgement of how successful that pact has been in raising prices, the alliance recommitted itself to aim for 100% compliance with the deal.

Top global exporter Saudi Arabia will increase output by hundreds of thousands of barrels, he said, with exact figures to be decided later. It also implies a transfer in market share from Venezuela and Iran.

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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.

Oil prices rallied Friday, with USA crude futures up almost 6% for the week, as OPEC members agreed to raise output but by an amount that appears to be less than the market had anticipated. Saudi Arabia said the increase would amount to less than 1 million bpd, while Iraq said it would be around 770,000 bpd.

OPEC agreed on a "nominal" production increase of 1 million barrels per day, Saudi Arabian Minister of Energy, Industry and Mineral Resources Khalid Al-Falih said. Iran has bridled at Trump's intervention into the group's policy.

"Zanganeh can go back to his country and say "I won", because we are keeping the original agreement unchanged".

Opec's obituary has been written many times, but since its creation more than a half-century ago, the group has been jolting the world. Those two heavyweights are even considering inviting all 24 countries to join a permanent body with its own constitution and secretariat.

The UAE minister explained that the next OPEC and non-OPEC Ministerial Meeting would take place in Vienna, Austria, on December 4, 2018. Opec stressed that it targets market stability rather than prices, but the longer-term outlook for both looks uncertain. Much will depend on how much extra crude comes back on to the market, the robustness of American shale drillers, the fate of Venezuela's crisis-hit oil industry and the impact of U.S. sanctions on Iran.

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