OPEC inches towards oil output deal ahead of key meeting

Gladys Abbott
June 22, 2018

Volatility was the theme on Wednesday as bearish traders continue to support the notion that Saudi Arabia and Russian Federation would push for at least a 1 million barrel per day increase in production, while bullish investors priced in opposition to the increase by Iran, Iraq and Venezuela.

The Organization of the Petroleum Exporting Countries meets on Friday to decide on output policy amid calls from major consumers such as the United States, India and China to cool down oil prices by producing more crude.

"It wasn't a good meeting", Iranian Oil Minister Bijan Namdar Zanganeh told reporters. He echoed earlier comments from OPEC Secretary-General Mohammad Barkindo.

With fewer than 24 hours to go before a pivotal meeting, Saudi Arabia urged OPEC to help consumers by boosting oil supply as opposition from arch-rival Iran showed signs of wavering. In the past year, many promised to prioritize spending discipline over production expansion after previously rushing to pump more oil when prices recovered.

Saudi Arabia and its allies estimate that total cuts now amount to 2.8 million barrels.

Falih also said the real increase would be smaller than the nominal gain of 1 million bpd, meaning a compromise with Iran remained possible.

Additionally, in a sign of strong demand, USA refineries processed a seasonal record of 17.7 million barrels per day (bpd) of crude oil last week, according to the EIA. The proposal has yet to win the backing of all OPEC members, and may also meet resistance from Venezuela, Algeria or Iraq - nations which have limited scope to increase production.

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Sources told Reuters on Thursday that Iran wants any increase to be justified on demand conditions and not dictated by outside external pressure, as even some of Saudi Arabia's traditional allies have accused the kingdom of bending too far to appease us wishes.

"One million barrels a day is nominal".

But Iran has called on the group to resist pressure from U.S. President Donald Trump, who moved to reimpose sanctions on Tehran last month after announcing he would pull the United States out of Iran's nuclear agreement with world powers. Venezuela's oil industry is collapsing due to years of mismanagement and an economic crisis.

"An agreement was reached yesterday to release the equivalent of about 1m barrels to the market; it will be distributed pro rata", Al-Falih said on Friday, of an Opec committee meeting on Thursday. But problems in Venezuela, Mexico and other nations mean the reduction in May was far higher.

Oil prices have been on a roller-coaster ride over the last few years, with the global 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. That surge prompted the US president to complain on Twitter that the cartel was artificially inflating prices.

Brent crude was up 50 cents at 75.58 dollars a barrel by 1335 GMT.

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