Oil falls as OPEC nears deal to raise production

Gladys Abbott
June 22, 2018

A big OPEC deal- adding more than 1 million barrels - could cause prices to dip into the $2.60s or $2.70s this summer, he said. It could also raise targets for all, even though any increase would come from only a few members.

Iran, OPEC's third-largest producer, had demanded OPEC reject calls from US President Donald Trump for an increase in oil supply, arguing that Trump had contributed to a recent rise in prices by imposing sanctions on Iran and Venezuela.

Adding an extra one million barrels per day to the market "sounds like a good target to work with", Saudi Energy Minister Khalid al-Falih said at a seminar organised by the Organization of Petroleum Exporting Countries (OPEC).

"In the long term, this will have a negative effect on the global economy even if, in the short term, it might be positive for other non-US producers", Rainer Seele, chief executive at Austria's oil company OMV, said in Vienna where OPEC officials and ministers and top oil industry executives attended a seminar this week.

The Iran walk-out shows the tension within OPEC after the US, China and India put pressure on the cartel to boost production to ease the pain of high oil prices.

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

Iran has bulked at the request because it faces sanctions after President Donald Trump ripped up an global nuclear agreement.

"Any deviation from this figure is likely to generate a market response", said Warren Patterson, commodities strategist at Dutch bank ING in Amsterdam.

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"We want to prevent the shortage and the squeeze that we saw in 2007-2008", Falih said.

Crude oil prices are trading lower early Thursday, but inside yesterday's range. "Nigeria under this scenario must build capacity to participate easily when OPEC expands its production", he said.

"We are making good progress", said United Arab Emirates Energy Minister Suhail Al Mazrouei, who also now holds the position of OPEC president.

On Friday afternoon Opec confirmed reports that a deal had been struck to reverse some of the cuts in place since 2016.

Saudi Arabia is ready to add back production it had agreed to curb in 2016, even though it is benefiting hugely from a almost 75% spike in oil prices.

Observers believe a face-saving deal could be brokered if members simply stopped over-complying with the current pact, and agreed to stick to the original reduction quotas - which would bring several hundred thousand more barrels to the market each day.

Iran's oil minister, Bijan Namdar Zanganeh, questioned this week whether OPEC is united enough to reach any agreement, and said Trump had politicized the debate over oil prices.

The United States, which rivals Russian Federation and Saudi Arabia for the position of world No.1 oil producer, is not participating in the current supply pact.

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