OPEC ministers agree to raise oil production but don’t say by how much

CNBC

  • OPEC ministers announced a deal on Friday that will increase oil supplies from the producer group.
  • Producers agreed to start pumping more so that they are no longer overshooting the production limits they agreed to in November 2016.
  • Analysts say the agreement is likely to add around 600,000 to 800,000 barrels a day to the market, helping to tame oil prices that have soared to multi-year highs recently.

OPEC reaches deal to hike oil output

OPEC reaches deal to hike oil output  

OPEC ministers announced a deal on Friday that will increase oil supplies from the producer group, which has been capping output in order to balance the market and boost prices for the last 18 months.

The agreement came after a week of tense negotiation at OPEC’s headquarters in Vienna, Austria. Top OPEC producer Saudi Arabia faced the challenge of convincing a handful of reluctant producers including IranIraq and Venezuela to support an output hike.

While OPEC avoided the disastrous outcome of ending the week without a deal, it left the oil market somewhat disappointed by declining to announce a hard figure.

“With the looming threat of an Iran walkout, the best you could get was deliberate ambiguity,” said Helima Croft, global head of commodity strategy at RBC Capital Markets.

On Friday, OPEC members agreed to start pumping more oil, though the agreement will not end the group’s 18-month-old deal to limit output. Instead the producers are seeking to cut no deeper than 1.2 million bpd, the target they set in November 2016.

OPEC reaches deal to hike output

OPEC reaches deal to hike output  

OPEC’s official statement said members agreed to return to 100 percent compliance with the 2016 deal beginning on July 1. The group said compliance reached 152 percent in May 2018, which means OPEC was cutting about 600,000 bpd more than it intended.

Ahead of the official decision, sources said the group was aiming to restore about 1 million bpd to the market. However, industry sources familiar with the oil cartel’s deliberations said the actual increase is likely to total around two-thirds of Saudi Arabia’s target.

That’s because some OPEC members would be unable to sufficiently ramp up crude production. Analysts say supply increases are more likely to fall in a range between 600,000 to 800,000 bpd.

OPEC’s agreement with Russia and other producers to limit oil output has helped to clear a global supply overhang that weighed on prices for years.

However, OPEC faced pressure to increase output from President Donald Trump and big consumers like India after the cost of crude soared to multi-year highs, boosted by strong demand, dwindling output from Venezuela and renewed U.S. sanctions on Iran.

Oil prices shot up on Friday as details of the deal leaked ahead of the statement. John Kilduff, founding partner at energy hedge fund Again Capital, said the lack of clarity in the official statement around a production target was boosting crude futures.

What is OPEC?

What is OPEC?  

“They definitely came up short, relative to expectations,” he told CNBC. “A headline touting … 1 million barrels of additional output would have made a difference.”

The group also did not explain how it would allocate the production increases across its 14 members. That has been a sticking point all week because only a handful of members like Saudi Arabia, the United Arab Emirates and Kuwait have the ability to increase output.

“How is it allocated? I think that is not yet decided due to the fact that there are differences between certain countries,” UAE’s Energy and Industry Minister Suhail Mohamed Al Mazrouei said at a press conference following the meeting.

Mazrouei, who currently serves as chairman and president of OPEC, added that it “would not make sense if we allocated production to a country that cannot produce it, so we avoided, I think, having allocations from that perspective.”

The holdout through the week was Iran, OPEC’s third biggest oil producer. The country sought to avoid a large production increase, which would weigh on prices at a time when Iran’s exports are expected to drop sharply as U.S. sanctions take effect in the coming months.

Iran’s oil minister, Bijan Zanganeh, pushed OPEC to include a statement in the communique criticizing U.S. sanctions on Iran and Venezuela, but the group rebuffed the demand.

“OPEC isn’t a political organization. Everybody pushed back on that ” Nigerian petroleum minister Emmanuel Ibe Kachikwu told CNBC.

President Donald Trump participates in a roundtable discussion about trade in Duluth, Minnesota, June 20, 2018.

Trump urges OPEC to increase output  

The members’ vastly differing relations with the United States loomed over the meeting following reports that Washington asked its Saudi allies to hike output prior to restoring sanctions on Iran.

Trump also directly blamed OPEC’s production cuts for boosting oil prices in a pair of recent tweets. On Friday, the president again urged the group to “keep prices down” at its meeting, even though his decision to sanction Iran was a major factor in boosting the cost of crude.

OPEC is scheduled to meet with Russia and several other producers on Saturday to discuss their role in easing production limits.

The wider producer alliance has sought to keep 1.8 million bpd off the market. But output among the 24 nations has actually fallen by about 2.8 million bpd, due largely to cratering production in Venezuela and supply disruptions elsewhere.

Saudi Energy Minister Khalid al-Falih said Friday morning that no-one should expect to see an “immediate flood” of oil coming back onto the market following the meeting.

He also warned the world could face a supply deficit of 1.8 million bpd in the second half of 2018 and that it was OPEC’s responsibility to alleviate consumers’ concerns.

Read OPEC’s full press release here.

Oil up on OPEC meeting uncertainty; trade disputes keep markets on edge

CNBC

  • Oil prices rose by more than 1 percent in Asian trading on Friday.
  • Prices were pushed up by uncertainty over whether OPEC would manage to agree a production increase at a meeting in Vienna

OPEC headquarters in Vienna.

Patti Domm | CNBC
OPEC headquarters in Vienna.

Oil prices rose by around 1 percent on Friday, lifted by uncertainty over whether OPEC would manage to agree a production increase at a meeting in Vienna later in the day.

Brent crude oil futures were at $73.78 per barrel at 0502 GMT, up 73 cents, or 1 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $66.26 a barrel, up 72 cents, or 1.1 percent.

The Organization of the Petroleum Exporting Countries (OPEC), a producer cartel with top exporter Saudi Arabia as the de facto head, is meeting together with non-OPEC members including No.1 producer Russia at its headquarters in the Austrian capital to discuss output policy.

The group started withholding supply in 2017 to prop up prices. This year, amid strong demand, the market has tightened significantly, pushing up crude prices and triggering calls by consumers to increase supplies.

Saudi Arabia and Russia are in favor of raising output. Other OPEC-members including Iran have opposed this, resulting in a flurry of backdoor diplomacy ahead of the meeting.

“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.

Phillip Futures, another brokerage, said in a note that it expected “an approximate 300,000-600,000 barrels per day (bpd) hike by Saudi Arabia and Russia collectively.”

U.S. investment bank Jefferies said an increase in “the range of 450-750,000 bpd seems the most likely outcome” of the meeting, driven largely by Russia and Gulf OPEC members Saudi Arabia, the United Arab Emirates and Kuwait.

Jefferies said these increases “would essentially offset Venezuelan declines and falling Iranian exports,” but the bank warned that global “spare capacity could fall globally to around 2 percent of demand – its lowest level since at least 1984.”

That would leave markets prone to supply shortages and price spikes in case of large, unforeseen disruptions.

Should you bet on oil ahead of OPEC?

Should you bet on oil ahead of OPEC?  

The other big uncertainty is potential Chinese tariffs on U.S. crude imports that Beijing may impose in an escalating trade dispute between the United States on one side and China, the European Union and India on the other.

Asian shares hit a six-month low on Friday as tariffs and the U.S.-China trade battle start taking their economic toll.

Should the 25 percent duty on U.S. crude imports be implemented by Beijing, American oil would become uncompetitive in China, forcing it to seek buyers elsewhere.

Chinese buyers are already starting to scale back orders, with a drop in supplies expected from September.

“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.

“This will certainly depress U.S. Gulf Coast prices,” it said.

Oil prices dip as Iran signals support for small OPEC supply increase

CNBC

  • Oil prices dipped as Iran signaled it could be won over to a small rise in OPEC crude output.
  • That likely paved the road for the producer cartel to agree on a supply increase.

OPEC

Heinz-Peter Bader | Reuters

Oil prices dipped on Thursday as Iran signaled it could be won over to a small rise in OPEC crude output, likely paving the road for the producer cartel to agree on a supply increase during a meeting on June 22.

However, prices were prevented from falling further by record refinery runs in the United States and a large decline in U.S. crude inventories, a sign of strong fuel demand in the world’s biggest economy.

Brent crude futures, the international benchmark for oil prices, were at $74.55 per barrel at 0040 GMT, down 19 cents, or 0.3 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $65.63 a barrel, down 8 cents.

Iran, a major supplier within the producer cartel of the Organization of the Petroleum Exporting Countries (OPEC), signaled on Wednesday it could agree on a small increase in the group’s output during a meeting at OPEC’s headquarters in Vienna on June 22.

“There appears to be an air of confidence that this deal will move through,”said Stephen Innes, head of trading for Asia/Pacific at futures brokerage OANDA in Singapore.

How this week's OPEC meeting could impact oil prices

How this week’s OPEC meeting could impact oil prices  

Tehran had previously resisted pressure by OPEC’s de-facto leader Saudi Arabia to raise output.

OPEC, together with other key producers including Russia, started withholding output in 2017 to prop up prices, but a tightening market in 2018 led to calls by major consumers for more supplies.

In a sign of strong demand, U.S. refineries processed a seasonal record of 17.7 million barrels per day (bpd) of crude oil last week, according to data from the Energy Information Administration (EIA) said on Wednesday.

Amid strong consumption, commercial U.S. crude inventories dropped by 5.9 million barrels in the week to June 15, to 426.53 million barrels, the EIA said.

U.S. crude oil prodution was flat week-on-week, remaining at a record 10.9 million bpd.

Oil prices gain on lower U.S. crude inventories, Libyan disruption

CNBC

  • Oil prices recovered some day-earlier losses in Asia on Wednesday.
  • Prices were supported by a drop in U.S. commercial crude inventories reported by the API.
  • Looming larger over markets is a June 22 meeting in Vienna of OPEC and non-OPEC producers.

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Nick Oxford | Reuters
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Oil prices recovered some day-earlier losses in Asia on Wednesday, supported by a drop in U.S. commercial crude inventories and the loss of storage capacity in oil producer Libya.

U.S. crude inventories fell by 3 million barrels to 430.6 million barrels in the week to June 15, according to American Petroleum Institute (API) in a weekly report on Tuesday.

Brent crude futures rose 18 cents, or 0.2 percent, to $75.26 per barrel at 0351 GMT, compared with their last close on Tuesday.

U.S. West Texas Intermediate (WTI) crude futures gained 20 cents, or 0.3 percent, to $65.27.

Traders said a drop in Libyan supplies due to the collapse of an estimated 400,000-barrel storage tank also helped push up prices.

Looming larger over markets, however, is a June 22 meeting in Vienna of the Organization of the Petroleum Exporting Countries (OPEC) with some other producers, including Russia, to discuss supply.

De-facto OPEC leader and top crude exporter Saudi Arabia, as well as Russia, which is not a member of the cartel but is the world’s biggest oil producer, are pushing to loosen supply controls introduced in 2017 to prop up prices.

Other OPEC-members, including Iran, are against such a move, fearing a sharp slump in prices.

“Saudi Arabia and Russia continued to push for a relaxation in production constraints, going against many other members’ wishes,” ANZ bank said on Wednesday.

“Iran rejected a potential compromise, saying it won’t support even a small increase in oil production. This puts Saudi Arabia in a tough position, as unanimity is needed for any accord to be reached,” it added.

Oil and energy under pressure amid escalating trade tensions

Oil and energy under pressure amid escalating trade tensions  

Jack Allardyce, oil-and-gas research analyst at Cantor Fitzgerald Europe, said he had the “expectation that supply quotas will be increased, but probably more in line with the smaller range being quoted (300,000-600,000 barrels per day) given the lack of consensus amongst OPEC members.”

Allardyce said “we could see this knocking $5 per barrel off Brent and perhaps squeezing the WTI discount a little.”

Markets are also anxiously watching trade tensions between the United States and China, in which both sides have threatened to impose stiff duties on each other’s exports, including U.S. crude oil.

A 25 percent tariff on U.S. crude oil imports, as threatened by China in retaliation for duties Washington has announced but not yet implemented against Chinese products, would make American crude uncompetitive in China versus other supplies.

This would almost certainly lead to a sharp drop-off in Chinese purchases of U.S. crude, which have boomed in the last two years to a business now worth around $1 billion per month.

Oil prices dip on expectations of rising OPEC, Russian supplies

CNBC

  • Oil prices fell on expectations that producer cartel OPEC and key ally Russia will gradually increase output.
  • OPEC will meet on June 22 in Vienna, Austria, to discuss forward policy.
  • The other key development for markets is the escalating trade dispute between the U.S. and China.

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Nick Oxford | Reuters
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Oil prices fell in early Asian trading on Tuesday on expectations that producer cartel OPEC and key ally Russia will gradually increase output after withholding supplies since 2017.

Brent crude futures, the international benchmark for oil prices, were at $78.05 per barrel at 0021 GMT, down 29 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $65.63 a barrel, down 22 cents, or 0.3 percent.

The Organization of the Petroleum Exporting Countries (OPEC) together with a group of non-OPEC producers that includes Russia started withholding oil supplies in 2017 to end a global glut and prop up prices.

Following a sharp increase in crude prices from their sub-$30 per barrel lows in 2016, the group on June 22 will meet in Vienna, Austria, to discuss forward policy.

Greg McKenna, chief market strategist at futures brokerage AxiTrader said there would likely be oil price volatility in the week ahead of the meeting.

“OPEC is fractured or fracturing,” McKenna said, as Iran, Venezuela, and Iraq “seek to veto the production increase”.

“We could be seeing the long-term relationship between the Saudis and Russia pushing OPEC into second place,” he added.

Goldman Sachs: Oil to rally above $80 a barrel

Goldman Sachs: Oil to rally above $80 a barrel  

Rob Thummel, managing director at asset management firm Tortoise said he “would recommend a small increase in production … (as) the global oil market is potentially vulnerable to an oil price spike” due to low inventories.

“We believe that OPEC will act like a central bank going forward, raising and lowering production as necessary with an objective of keeping global oil inventories at normal, 5-year levels,” Thummel said.

The other key development for global markets is the escalating trade dispute between the United States and China, in which both sides have threatened stiff tariffs on each others’ key export goods.

If implemented, China may react to U.S. tariffs by putting a 25 percent duty on U.S. crude oil imports, which have been surging since 2017, to a business now worth almost $1 billion per month.

Energy consultancy Wood Mackenzie said the United States “would find it hard to find an alternative market that is as big as China”.