Saudi Arabia: Deal can be done this week to boost oil supply

Ann Santiago
June 24, 2018

OPEC agreed on Friday on a modest increase in oil production from July after its leader Saudi Arabia persuaded arch-rival Iran to cooperate amid calls from major consumers to help reduce the price of crude and avoid a supply shortage.

The production limits by the Organization of the Petroleum Exporting Countries and Russian Federation since 2016 have helped increase oil prices, with the benchmark US crude contract hitting its highest level in more than three years in May.

Iran has so far been the main barrier to a deal, with Zanganeh saying OPEC should not yield to pressure from U.S. President Donald Trump to raise output.

The countries of the OPEC oil cartel convened in a meeting in Vienna on Friday, to discuss increasing their production by about 1 million barrels a day at a meeting Friday that could influence the cost of energy globally in coming months. Assuming that the main production continues, that will continue to drive inventories down, we think that that would be, you know, probably too short of a supply situation, that we can not allow to happen.

Ecuador's oil minister said he expects Friday's OPEC meeting to be hard, citing disagreements on a possible increase in crude output and Iran's demand that the gathering discuss USA sanctions.

The U.S. sanctions on Iran also mean that if OPEC agrees on an increase in output as a group, Iran will be one of the countries to lose out, as it will not be able to export as much as it would like.

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.

"The effective increase in output can easily be absorbed by the market", Harry Tchilinguirian, head of oil strategy at French bank BNP Paribas, told the Reuters Global Oil Forum.

Mr Zanganeh was due to attend a ministerial committee on Thursday, two sources said.

So an OPEC deal to increase output could also influence the balance of power in the Middle East.

Zanganeh was speaking ahead of a highly-anticipated meeting in Vienna, Austria, on Friday where OPEC members could move to ease the production cuts. The U.S. benchmark in May hit its highest level in three and half years, at $72.35 a barrel.

But Riyadh, under pressure from Washington to boost output in order to bring down prices, is encountering stiff opposition from Tehran, which is facing renewed sanctions following Washington's exit from the worldwide nuclear agreement.

Iranian Oil Minister Bijan Zanganeh said on Thursday he still believes OPEC can not reach a compromise decision on raising oil output at its meeting the following day.

"It will probably be around 600,000 or so", he said. Indeed, non-compliance with the OPEC deal is the easiest and most likely route for those states that no longer feel it is necessary.

"The market is going to say, 'That isn't enough, ' and 'How quickly is it going to come online?' That's when we're really going to resume the price increases", Flynn said.

The Opec members are Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola and Equatorial Guinea.

OPEC is an global organization with 14 members and doesn't take orders from anyone, Zanganeh said.

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