Just ahead of the OPEC meeting on Friday, participants at the cartel’s ministerial committee meeting say they are getting closer to an agreement that would likely see OPEC output increase by about 1 million b/d. OPEC Twitter photo.
OPEC output increase to stave off global crude shortage,
Prior to a meeting of the Organization of Petroleum Exporting Countries on Friday, the cartel’s ministerial committee met Thursday to discuss boosting OPEC output by about 1 million barrels per day (b/d) to avert supply shortages and price rallies.
Iran has been a vocal opponent of such a move, but Reuters’ sources say the Middle Eastern country could agree to the proposal under certain conditions.
During discussions, Saudi Arabia’s Energy Minister Khalid al-Falih said the world needs an extra 1 million b/d of production to head off a shortage of crude in the second half of 2018.
A number of top crude consumers, including the United States, China and India have called for the cartel to calm oil prices, which would support the world economy.
“We want to prevent the shortage and the squeeze that we saw in 2007-2008,” Falih said. The Saudi oil minister was referring to a time when oil prices neared $150 per barrel.
Supply pact participant Russia is hoping the group will agree to boost production by 1.5 million b/d.
The OPEC supply cut agreement called for participating nations to cut their combined production by 1.8 million b/d. The deal came into effect in January 2017 and has been credited with rebalancing the global crude market and brought oil prices up to around $74/barrel from lows of $27/barrel in 2016.
In recent months, supply interruptions in Venezuela, Libya and Angola have brought the OPEC cuts to about 2.8 million b/d. Iran is also facing Trump administration sanctions in the second half of 2018 which will also severely reduce its crude exports.
And in April, US President Donald Trump tweeted “Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!”
Since then, Iran has said OPEC should reject pressure from the US. However, on Wednesday, Iran’s Oil Minister Bijan Zanganeh said supply cut participants had over-delivered on their output reduction pledges in recent months should comply with their agreed quotas.
Should that happen, producers including Saudi Arabia which voluntarily cut production more than they had pledged, could increase their production.
“An increase is acceptable if justified from the demand side and if it is agreed by all OPEC members. An increase because of external pressure on OPEC is not acceptable,” Reuters reports a source familiar with Iranian thinking said.
On Wednesday, Zanganeh told CNN that if OPEC members were to hit their compliance targets, the real supply increase from the cartel and other participants would be about 460,000 b/d.
Concerned about the possibility of slumping oil prices, Venezuela and Iraq opposed relaxing the supply cut agreement.
However, on Thursday, Reuters reports Iraq’s Oil Minister Jabar al-Luaibi said: “We are in comprehensive talks with all ministers, especially Saudi Arabia and Iran, and we are trying to narrow that gap between the two”.
Falih said all OPEC members would decide how any increase in output would be handled at the Vienna meeting on Friday.
Reuters’ sources say the final compromise will also depend on if OPEC will agree to mention the US sanctions in the cartel’s communique. According to Reuters, Iran sees this as an important point as the country has blamed the US sanctions against Tehran for the recent rise in oil prices.
Brent oil prices were down over 2 per cent on Thursday.