Russian Federation backs OPEC oil output hike

Gladys Abbott
June 24, 2018

It's a dramatic policy change for the organisation known as OPEC.

Opec's decision confused some in the market as the producers gave opaque targets for the increase, making it hard to understand precisely how much more it will pump.

U.S. President Donald Trump was among those wondering how much more oil OPEC will deliver. But since the group had gone well overboard and trimmed output by nearly 2 million barrels a day, due in large part to a steep falloff in Venezuelan oil production, respecting the original target will translate into more oil for the global market - on paper, at least.

Returning to Friday's output agreement, the official communique was a classic piece of OPEC-speak - short on figures and something that everyone could claim as a victory.

At stake is the fate of an 18-month-old supply-cut deal between members of the Organization of the Petroleum Exporting Countries and allied countries that has cleared a global oil glut and lifted crude prices.

In late-June, Russia and Saudi-Arabia led the push to increase the production by around 600,000 barrels per day (bpd).

He also warned the world could face a supply deficit of 1.8 million bpd in the second half of 2018 and that it was OPEC's responsibility to alleviate consumers' concerns. Venezuela's production has dropped amid domestic political instability.

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"Each country can only pro-rata increase their production and the majority of them can't increase their production at all", Wright said during an interview on "Countdown to the Closing Bell".

Worldwide marker, Brent, traded above US$100 a barrel for several years until 2014, dropping to nearly US$26 in 2016 and then recovering to over US$80 last month. These historically high stockpiles drive home the potential risk of sustained high oil exports from the world's largest economy, even with the shale oil industry facing a lower growth rate while still accounting for around 80 percent of total global output growth in 2018.

Russia welcomes OPEC's decision to increase oil production by 1 mln barrels per day withing the OPEC+ deal, Russian Minister of Energy Alexander Novak told reporters.

Rising trade tensions between the U.S. and China continues to remain a prominent theme with neither side showing any signs of backing down. However, Crude oil prices should still remain north of the $60 mark going into the year-ahead, especially considering global storage levels have only come down toward five-year averages based on some of the highest inventory levels recorded in decades of trades.

Iran's Zanganeh earlier this week accused Trump of trying to politicise OPEC and said it was United States sanctions on Iran and Venezuela that had helped push up prices.

The group started withholding supply in 2017 and this year, amid strong demand, the market tightened significantly, triggering calls by consumers for higher supply.

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