Saudis Pledge Crude Oil Supply Boost to Benefit Consumers

Gladys Abbott
June 28, 2018

Last year, the country was amongst 11 non-member countries that joined OPEC members in production cuts of 1.8 million barrels of oil per day.

Saudi Arabia's Minister of Energy, Industry and Mineral Resources Khalid Al Falih has said the oil production agreement reached over the weekend in Vienna at the 174th meeting of the Organisation of the Petroleum Exporting Countries (OPEC) will see around 1mn extra barrels per day (bpd) added to the global market, according to multiple sources. The spread had widened to as much as $11.57 on June 1, but had been contracting ahead of OPEC's expected supply increase, analysts said.

"After Friday's ambiguous OPEC meeting outcome, Saudi Arabia and Russian Federation sought to reassert control of the narrative", said Helima Croft, chief commodities strategist at RBC Capital Markets LLC in NY, adding it would send a strong supply signal to the market.

Dmitriev told Reuters he expected investments between the two countries to double in the next three years.

At 10:40 am Singapore time (0240 GMT), August ICE Brent crude futures were up 3 cents/b (0.04%) from Monday's settle at $74.76/b, while the NYMEX August light sweet crude contract was up 12 cents/b (0.18%) at $68.20/b.

The meeting also acknowledged the crucial role played by participating non-OPEC nations in the DOC in maintaining oil balance worldwide and expressed hopes that the same will be continued in the future as well. The rise in prices on Friday showed the agreement "may be a little short" of what is needed.

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"OPEC was able to overcome objections by Iran and others to production increases by framing their decision as a return to the originally agreed 1.8 million b/d cuts", S&P Global Platts Analytics said.

This makes ideal sense, since crude oil prices are now the highest in more than three years, but not everybody is so pessimistic.

The rally came as a surprise because even though no firm numbers were specified in the meeting communique, analysts expect around 770,000-800,000 b/d of crude supply will come back onto the market, a largely bearish development.

Maintain overweight: In last week's Vienna meeting, Opec and non-Opec allies chose to raise production output, effective July 2018.

The minister had said that globally crude prices have gone beyond the threshold which can be sustained by the world.

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