Saudi Arabia persuades Iran and OPEC to agree increase in oil production

Anna Jefferson
June 22, 2018

Any production increase would help offset a decline in output by Venezuela, an OPEC member consumed by economic and political crisis, and the prospect of reduced exports from Iran - OPEC's third-biggest producer - now that the in the process of re-imposing sanctions over that country's nuclear program.

The Organization of the Petroleum Exporting Countries is hosting a number of events in Vienna this week, but the meetings set for Friday and Saturday are expected to yield decisions on crude production that could shake up the oil market.

Mustapha Guitouni, Algeria's energy minister.

Saudi Energy Minister Khalid al-Falih had earlier signalled a compromise could be in the works.

Mohammed Barkindo, Opec secretary general.

OPEC has agreed to increase oil production by one million barrels a day after a stormy meeting that saw Iran walk out of negotiations. The talks, held as the cartel hosted an global energy conference attended by hundreds of officials, executives and investors, will shape oil prices, energy stocks and currencies of petroleum-exporting countries for months to come.

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Two OPEC sources said the group agreed that OPEC and its allies led by Russian Federation should increase production by about 1 million barrels per day (bpd), or 1 per cent of global supply.

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 U.S. shale oil rigs.

He was echoing comments from his Iranian counterpart, Bijan Namdar Zanganeh, who had rejected any production increase when he arrived in Vienna on Tuesday, saying OPEC shouldn't be doing Trump's bidding. Outages in some nations and deeper-than-agreed cuts by others have made the actual reduction larger by about 1 million barrels a day.

Opec and its allies have since past year been participating in a pact to cut output by 1.8 million bpd.

"If China's import demand dries up, more than 300,000 bpd of U.S. crude will have to find a new destination", energy consultancy FGE said, adding that "this will certainly depress U.S. Gulf Coast prices".

Trump's involvement makes it hard for Tehran to accept a compromise. Consecutive increase in inventory is not good for a stable market price so also is a sudden fall in inventory due to higher oil price.

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Zanganeh has said that if Opec returned to regular compliance, the group would raise output by around 460,000 bpd.

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

As tensions mounted, the Iranian and Saudi ministers huddled for bilateral talks on Friday morning, holding up the start of the closely watched OPEC meeting.

The market is contending with exactly how much output will change.

"There was a lot of anticipation in the market that there was going to be a lot of new oil coming to market, and that isn't going to happen, at least for now", said John Kilduff, a partner at Again Capital.

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