After US President Donald Trump complained about rising oil prices, Saudi Arabia and Russia are considering boosting Russian and OPEC output by about 1 million barrels per day. Anadarko photo.
Russian, OPEC output curbed by 2017 supply cut deal
Energy Ministers from Saudi Arabia and Russia say they are are considering raising non-OPEC and OPEC output by about 1 million barrels per day after US President Donald Trump tweeted that OPEC had “artificially” raised oil prices.
In response to Trump’s complaint, OPEC’s Secretary-General Mohammad Barkindo said “We pride ourselves as friends of the United States,” while speaking at Russian’s main economic forum on Friday.
Barkindo added that it is not unusual for the US to pressure OPEC. He says some US energy secretaries have asked the cartel to help cut prices in the past.
Khalid al-Falih, Saudi Arabia’s Energy Minister, said should Riyadh and Moscow opt to boost their production, it would be done gradually to avoid a market shock.
Despite these assurances, after Saudi Arabia and Russia pledged to ease supply concerns, oil prices fell by over 3 per cent on Friday to just over $76/barrel.
In January 2017, most OPEC countries and some non-cartel nations, including Russia, agreed to cut their production by a combined 1.8 million barrels per day (b/d) to reduce the global glut of crude. Since then, participants have shown strong compliance with their pledges, and during some months, they surpassed their commitments.
In April, participants cut their overall production by 52 per cent more than promised.
One of the reasons for the strong compliance with the deal is plummeting production in Venezuela, where a political and social crisis has left its oil industry struggling to produce crude. In March, OPEC reported Venezuela’s production amounted to 1.488 million b/d. In 2015, the South American country averaged 2.5 million b/d.
Russia’s Energy Minister Alexander Novak says that with the decline in Venezuelan production, the OPEC supply cuts actually amount to 2.7 million b/d, almost 1 million b/d over the agreed upon reductions.
However, Novak did not say if OPEC and Russia will opt to boost their output by 1 million b/d when the participants meet next month in Vienna.
“The moment is coming when we should consider assessing ways to exit the deal very seriously and gradually ease quotas on output cuts,” Reuters reports Novak said in televised comments.
This week, Saudi Arabia, Russia and United Arab Emirates, the holder of the OPEC presidency this year, are holding initial talks about possible changes to the agreement this week in Russia. The final decision will be made when the OPEC and non-OPEC minister meet in Vienna on June 22-23.
China has raised concerns about oil supply as well. The world’s largest importer of crude is concerned that there isn’t enough oil being pumped to meet growing demand.
According to Reuters, Falih said he has been in contact with China’s energy chief to talk about cooperation between the two countries and to review the oil market.
The administrator of China’s National Energy Administration, Nur Bekri, told Falih that he hopes the kingdom “can take further substantial actions to guarantee adequate supply” in the crude market, according to Falih.
However, negotiations concerning the increase in Russian and OPEC output could prove to be tricky, according to Reuters’ sources.
“The talks now are to bring compliance down to the 100 percent level, more for OPEC rather than for non-OPEC,” one source said.
According to Reuters, OPEC and Russia could choose to raise output as early as next month on supply concerns due to Venezuela’s poor production and President Trump’s decision to slap sanctions on Iran, which will cut the Middle Eastern country’s crude exports.
But sources add that it is not clear which OPEC countries actually have capacity to boost their output to fill the supply gap.
“Only a few members have the capability to increase production, so implementation will be complicated,” one OPEC source told Reuters.
Meanwhile, production in the US continues to rise. The US Energy Information Administration reported US crude output rose to a record high of 10.725 million b/d last week.