Saudi Struggles For Gulf Oil Producers' Support Ahead Of OPEC Meeting

Gladys Abbott
June 24, 2018

Joe McMonigle, an analyst with Hedgeye who is in Vienna to observe the OPEC proceedings, said he doubts the producer group would approve any language on sanctions.

Brent oil prices rose 1% to 74.03 in London trading on Friday. At least some of that oil is now likely to be pulled from the market.

As for oil prices, the 1 million bpd agreement can be said as the "expected" outcome despite the estimates ranging from 300k to 1.5 million bpd coming into this week.

Big oil consuming nations such as India have been calling on the producers to pump more barrels following a sharp rise in prices.

Some analysts believe that Saudi Arabia needs a Brent price closer to $90 a barrel to cover its domestic spending but is feeling pressure from the United States to head off rising prices by boosting output.

But regional rival Iran has bristled at the thought of lifting the output ceiling at a time when its oil industry is facing renewed sanctions over US President Donald Trump's decision to quit the worldwide nuclear deal with Tehran. The cartel's largest producer, Saudi Arabia, wants higher prices but hears President Donald Trump, leader of its most important ally, lobbying openly for lower prices.

"Saudi Arabia and Russian Federation continued to push for a relaxation in production constraints, going against many other members' wishes", ANZ bank said on Wednesday.

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The energy ministers of Saudi Arabia and Iran also held last-minute talks ahead of the Opec meeting on Friday, the Financial Times cited Iran's Shana news agency as reporting.

The Saudi proposal involves a complex calculation based on how much the group has cut production beyond the initial target of 1.8 million barrels a day set in 2016, said delegates, asking not be named discussing private meetings.

Last year, OPEC members unanimously agreed on the oil price of USD 60 dollars per barrel, by cutting oil output by 1.2 million barrels per day (bpd) to 32.5 million bpd. Production has been subdued in recent months due to unexpected outages in Venezuela, Libya and Angola.

Opec has reached an agreement in principle to boost oil production, achieving a last-minute compromise that overcame Iran's threats to veto any supply hike. Countries with a lack of spare capacity, including Iran, Iraq and Venezuela, are resistant. United States light crude was 80 cents higher at $66.34.

The Organisation of the Petroleum Exporting Countries (OPEC) is now producing about 31.86 million barrels per day. Even though Saudi Arabia's headline figure calls for a 1 Mbd increase in crude supply to be phased in throughout the second half of the year, the actual physical barrels being added will amount to less, approximately 600,000 b/d.

OPEC's deal to release more supply centres on the idea of returning to 100 per cent compliance with existing, agreed cuts.

Current restrictions were due to be in place until the end of 2018 but most commentators expect the meeting will result in some degree of production increase.

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