OPEC Agrees to Boost Oil Output

by Ben Pena June 24, 2018, 14:57
OPEC Agrees to Boost Oil Output

Oil prices rose sharply after OPEC agreed to only a modest increase in output to compensate for losses in production at a time of rising global demand.

Al Jazeera's Paul Brennan explains why.

While oil prices were rising in the market, people such as Iran's oil minister Bijan Namdar Zangeneh said the price increases were political, and a direct outcome of the U.S. withdrawal from the Iran nuclear deal.

Taking a somewhat different stance, Russian Energy Minister Alexander Novak said Saturday's endorsement to increase oil production was based on "fundamental principles, on research done by our teams, by teams of our friends and colleagues, the OPEC secretariat". That means the country has little to gain from a deal to raise OPEC output, unlike top oil exporter Saudi. The figure has been inflated by a plunge in supplies from almost bankrupt Venezuela.

OPEC's deal to release more supply centres on returning to 100 percent compliance with existing, agreed cuts. The group said compliance reached 152 percent in May 2018, which means OPEC was cutting about 600,000 bpd more than it intended.

Al-Falih went out of his way to give a detailed explanation of how the so-called OPEC+ deal will work, clarifying a vaguely worded agreement and contradictory statements from other ministers that spurred a rally in crude futures on Friday.

Riyadh has invited Moscow to join OPEC as an observer, the Saudi energy minister says.

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An Iranian OPEC delegate immediately criticized the Saudi position, saying the agreement didn't allow any member to replace someone else's market share.

Worldwide marker, Brent, traded above US$100 a barrel for several years until 2014, dropping to nearly US$26 in 2016 and then recovering to over US$80 last month. US officials have asked Japan to completely halt oil imports from Iran, according to people with knowledge of the matter. It shows the important role OPEC still can play, despite the political differences between some key members.

World's largest oil consumers - US, China, and India - wanted the rise in supply to bring the cost down.

"I think there is a risk, a non-trivial risk, of oil prices really spiking in the next twelve months", he said. This, alongside forecasted global economic growth of 3.8 percent (Year-on-Year), should see markets, at worse, move sideways around the current 2014 highs or slightly lower. The U.S. motorbike maker has in the past warned of a "significant impact" on its sales if the European Union decides to increase duties on motorcycles in retaliation.

The move from the U.S. pinched India hard by sending pump prices to record highs and putting pressure on inflation, CAD (current account deficit) and government math by pushing up the oil import bill.

Oil prices have been on a roller-coaster ride over the last few years, with the global marker, Brent, trading above $100 a barrel for several years until 2014, dropping to nearly $26 in 2016 and then recovering to over $80 last month.

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