OPEC agrees modest hike in oil supply after Saudi and Iran compromise

Sunday, 24 Jun, 2018

Countries in the OPEC oil cartel have agreed to a new oil output level that effectively increases production by nearly 1 million barrels per day.

World shares rose on Friday but stayed on track for their biggest weekly decline in three months as global trade tensions continued, though oil prices surged after OPEC decided on a modest production increase.

Saudi Arabia said the increase would amount to less than 1 million bpd, while Iraq said it would be around 770,000 bpd. "More oil on the market means relatively lower prices for consumers". It will remain at least until November, when OPEC members may adopt a different policy based on Trump's decision about Iran. This not only adversely impacts one of OPEC's largest member's upstream activities, further weighing output levels lower by 600,000 bpd, but also lead to the retraction of production volumes half amounting to nearly half of OPEC's agreed total reduction of 1.2 mbpd.

The idea to bump output has been advocated by Saudi Arabia and Russian Federation, which sought to alleviate high prices through increased supply on the market without creating a glut.

OPEC didn't agree to increase production as such.

Further to OPEC being blindsided by the rise of shale oil, the global "Easy-Money" environment perpetuated by central banks - namely the US Fed's Quantitative Easing (QE) program - has also played a key role in the Shale supply-boom.

At stake is the fate of an 18-month-old supply-cut deal between members of the Organization of the Petroleum Exporting Countries and allied countries that has cleared a global oil glut and lifted crude prices.

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.

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Opec and its allies (also known as Opec+) have since past year been participating in a pact to cut output by 1.8mn bpd.

Moscow had long argued for a hike, feeling the pressure from domestic oil companies eager to produce more so they can cash in on the higher prices. The figure has been inflated by a plunge in supplies from almost bankrupt Venezuela.

Returning to Friday's output agreement, the official communique was a classic piece of OPEC-speak - short on figures and something that everyone could claim as a victory. On that same note, U.S. oil stockpiles - whilst lingering near their five-year average from 2013 to 2018 - remain approximately 29 percent above their 2008-2013 five-year averages.

Liberty Oilfield Services Chairman Chris Wright on how OPEC ministers agreed to raise oil production.

The performance of the United Arab Emirates' oil minister and OPEC President Suhail Mazrouei was a master class in how to avoid a question.

"Zanganeh can go back to his country and say "I won", because we are keeping the original agreement unchanged".

"We have agreed", Azevedo told reporters after a meeting with OPEC ministers and 10 non-OPEC partner countries in Vienna. The next formal OPEC meeting was set for December 3.