Opec moves towards raising oil supply as Iran softens stance

Lloyd Doyle
June 23, 2018

The countries of the OPEC cartel agreed on Friday to pump 1 million barrels more crude oil per day, a move that should help contain the recent rise in global energy prices.

The decision sparked concerns in the USA that China would turn to Iran as a potential oil supplier, buoying the Iranian market in the midst of the White House's reinstatement of hardline sanctions on Tehran.

"While we are not in favour of prices as low as $30 per barrel, we also do not support the prevailing high price which dent our fiscal balance and undermine our development process", Mr. Pradhan added. Some OPEC members have been opposed to a production increase, and others don't want to go as far as Saudi Arabia.

Al Mazrouei said that OPEC and its allies would now work to boost production by up to 1 million barrels a day.

The pair is able to increase their production significantly and the countries are understood to be eager to defend their share of the global market against the return of USA shale oil rigs.

According to WoodMac, US crude oil exports to China averaged around 300,000 bpd in the first quarter this year, accounting for just over 20 percent of all USA crude oil exports. Venezuela's production has dropped amid domestic political instability.

The outcome of that meeting could give oil users around the world a strong indication as to whether they face the prospect of rising prices later this year - possibly as high as $100 a barrel - or more plentiful supply that would ease the cost of gasoline and diesel.

TRADE TENSIONS: The U.S.is to begin taxing $34 billion in Chinese goods in two weeks while Beijing has vowed to retaliate with its own tariffs on U.S. soybeans and other farm products.

"The actual decision by OPEC and its partners - which may not actually become apparent until Saturday - is the big one traders are watching", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

The SCI finished sharply lower on Thursday following losses from the insurance and energy stocks, while the financials and oil companies were mixed.


The output boost agreed on Friday had been largely priced into the market and was seen as modest.

When the oil price is too high, economic growth is constrained as individuals and companies feel compelled to cut spending. In practice, the reduction was even deeper due to production problems. That has since then helped push up the price of oil by nearly 50 percent.

Adding to the irrelevance of Iran's demands is the fact that it is not now capable of increasing production.

Oil prices have continued to drop after Iran and leading producers Saudi Arabia and Russian Federation agreed on a plan to increase production.

The current standoff was partially triggered by the United States, with Trump calling directly on OPEC to raise output.

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. "Need to keep prices down!"

Bijan Namdar Zanganeh, Iran's oil minister, stormed out of the meeting on Thursday evening.

US President Donald Trump was among those wondering how much more oil OPEC will deliver.

Outside factors are also at play.

Iran is usually not part of the committee, which groups Russia, Saudi Arabia, the United Arab Emirates, Oman, Kuwait, Algeria and Venezuela.

Other reports by Iphone Fresh

Discuss This Article

FOLLOW OUR NEWSPAPER