OPEC agrees modest hike in oil supply after Saudi and
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[June 23, 2018]
By Rania El Gamal, Alex Lawler and Shadia Nasralla
VIENNA (Reuters) - OPEC agreed on Friday on
a modest increase in oil production from next month after its leader
Saudi Arabia persuaded arch-rival Iran to cooperate, following calls
from major consumers to curb rising fuel costs.
But the agreement failed to announce a clear target for the output
increase, leaving traders guessing how much more OPEC will actually
pump. Oil prices <LCOc1> rose by $1.85 to $74.90 a barrel.
U.S. President Donald Trump was among those wondering how much more oil
OPEC will deliver. "Hope OPEC will increase output substantially. Need
to keep prices down!" Trump wrote on Twitter after OPEC announced its
The United States, China and India had urged oil producers to release
more supply to prevent an oil deficit that could undermine global
The Organization of the Petroleum Exporting Countries said in a
statement that it would raise supply by returning to 100 percent
compliance with previously agreed output cuts, but gave no concrete
Saudi Arabia said the move would translate into a nominal output rise of
around 1 million barrels per day (bpd), or 1 percent of global supply.
Iraq said the real increase would be around 770,000 bpd because several
countries that had suffered production declines would struggle to reach
By avoiding setting individual country targets, the deal appears to give
Saudi Arabia the leeway to produce more than its official OPEC target
and fill the gap left by those like Venezuela who cannot pump enough to
meet their official allocation.
Iran, OPEC's third-largest producer, had demanded OPEC reject calls from
Trump for an increase in oil supply, arguing that he had contributed to
a recent rise in prices by imposing sanctions on Iran and fellow member
Trump slapped fresh sanctions on Tehran in May and market watchers
expect Iran's output to drop by a third by the end of 2018. That means
the country has little to gain from a deal to raise OPEC output, unlike
top oil exporter Saudi Arabia.
However, Saudi Energy Minister Khalid al-Falih convinced his Iranian
peer Bijan Zanganeh to support the increase just hours before Friday's
OPEC and its allies have since last year been participating in a pact to
cut output by 1.8 million bpd. The measure had helped rebalance the
market in the past 18 months and lifted oil <LCOc1> to around $75 per
barrel from as low as $27 in 2016.
But unexpected outages in Venezuela, Libya and Angola have effectively
brought supply cuts to around 2.8 million bpd in recent months.
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Saudi Arabia's Oil Minister Khalid al-Falih talks to journalists at
the beginning of an OPEC meeting in Vienna, Austria, June 22, 2018.
The output boost agreed on Friday had been largely priced into the market and
was seen as modest.
"It will be enough for now but not enough for the fourth quarter to address a
decline in Iranian and Venezuelan exports," said Gary Ross, head of global oil
analytics at S&P Global.
"There isnít a lot of spare capacity in the world. If we lose a million bpd of
output from Venezuela and Iran in the fourth quarter, where will all these
barrels come from? We are in for higher prices for longer," he said.
Falih has warned the world could face a supply deficit of up to 1.8 million bpd
in the second half of 2018 and that OPEC's responsibility was to address
"We want to prevent the shortage and the squeeze that we saw in 2007-2008,"
Falih said, referring to a time when oil rallied close to $150 per barrel.
OPEC's deal to release more supply centres on returning to 100 percent
compliance with existing, agreed cuts. Current compliance is around 40-50
percent above target because of production outages in Venezuela, Libya and
"As a group we can meet the 100 percent compliance. As individual countries, it
is challenging," said United Arab Emirates Energy Minister Suhail bin Mohammed
Zanganeh has said that if OPEC returned to regular compliance, the group would
raise output by around 460,000 bpd.
Iran has objected to having members with additional capacity such as Saudi
Arabia fill Venezuelan output gaps.
"Both Saudi and Iran can show that they won," an OPEC delegate said.
"Zanganeh can go back to his country and say 'I won', because we are keeping the
original agreement unchanged. Falih can go back and say 'we will be able to
raise production to meet market needs'."
OPEC and non-OPEC producers will meet on Saturday to iron out details of the
pact and then again in September to review the deal. The next formal OPEC
meeting was set for Dec. 3.
(Additional reporting by Ahmad Ghaddar, Ernest Scheyder and Vladimir Soldatkin;
Writing and editing by Dale Hudson and Dmitry Zhdannikov; Graphics by Amanda
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