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 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.

‘Biggest’ change in oil market history: Crude prices set to soar ahead of shipping revolution

CNBC

  • New rules coming into force in approximately 18 months’ time are seen as a source of great concern for some of the world’s biggest oil producers.
  • On January 1, 2020, the International Maritime Organization (IMO) will enforce new emissions standards designed to significantly curb pollution produced by the world’s ships.
  • Global benchmark Brent crude will climb to $90 a barrel by 2020 as new international shipping laws overhaul the types of fuels produced by refiners, Morgan Stanley analysts predicted in a research note.

Risk oil market could lose Iran’s exports keeps prices ticking higher: Pro  

Instead of OPECIran or even Venezuela, the most prominent driver of oil prices over the next two years is likely to come in the shape of a shipping revolution, analysts have warned.

New rules coming into force in approximately 18 months’ time are seen as a source of great concern for some of the world’s biggest oil producers. That’s because global energy and shipping industries are thought to be ill-prepared for the looming sea change.

On January 1, 2020, the International Maritime Organization (IMO) will enforce new emissions standards designed to significantly curb pollution produced by the world’s ships.

“It’s the biggest (change) in the history of the market,” Amrita Sen, chief oil analyst at Energy Aspects, told CNBC’s “Squawk Box Europe” this week.

Why are the changes being enforced?

Amid a broader push towards cleaner energy markets, the IMO’s changes will specifically look to cut back sulfur emissions. The pollutant is a component of acid rain, which harms vegetation and wildlife, and is blamed for some respiratory illnesses.

The forthcoming measures are widely expected to create an oversupply of high-sulfur fuel oil while sparking demand for IMO-compliant products — thus ratcheting up the pressure on the refining industry to produce substantially more of the latter fuels.

“That is very important because Middle Eastern producers lose out heavily from that because their crude tends to be very high sulfur,” Sen said.

A support vessel flying an Iranian national flag sails alongside the oil tanker 'Devon' as it prepares to transport crude oil to export markets in Bandar Abbas, Iran, on Friday, March 23, 2018.

Ali Mohammadi/Bloomberg via Getty Images
A support vessel flying an Iranian national flag sails alongside the oil tanker ‘Devon’ as it prepares to transport crude oil to export markets in Bandar Abbas, Iran, on Friday, March 23, 2018.

In contrast to some of the world’s leading oil producers in the Middle East, including OPEC kingpin Saudi Arabia, the U.S. is expected to be better-placed to cope with the IMO’s measures due to their reputation for producing lighter crude.

What does this mean for oil prices?

Global benchmark Brent crude will climb to $90 a barrel by 2020 as new international shipping laws overhaul the types of fuels produced by refiners, Morgan Stanley analysts predicted in a research note published last week.

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“We expect the crude oil market to remain under-supplied and inventories to continue to draw,” the bank said, before adding: “This will likely underpin prices.”

To be sure, the IMO’s rules will ban ships using fuel with a sulfur content higher than 0.5 percent, compared to 3.5 percent at present, unless ships are fitted with equipment to clean up its sulfur emissions.

Right now, few ships have invested in equipment to scrub pollutants from engines that burn high-sulfur fuel, so many external observers believe the majority of shipping companies are investing in capacity to make low-sulfur fuel.

Oil dips after rally, OPEC may ease supply curbs

CNBC

  • Oil prices edged lower on Wednesday.
  • Markets took a breather on expectations OPEC may raise supplies as early as June.
  • Concerns about a potential drop in Iranian oil exports following Washington’s exit from the Iran nuclear deal remained.

Oil jack pumps in the Kern River oil field in Bakersfield, California.

Jonathan Alcorn | Reuters
Oil jack pumps in the Kern River oil field in Bakersfield, California.

Oil prices edged lower on Wednesday as the market took a breather on expectations OPEC may raise supplies as early as June, although geopolitical risks kept a floor under the market.

Brent futures dipped 4 cents to $79.53 a barrel by 0006 GMT, after climbing 35 cents on Tuesday. Last week, the global benchmark hit $80.50 a barrel, the highest since November 2014.

U.S. West Texas Intermediate (WTI) crude futures eased 2 cents to $72.18 a barrel, having climbed on Tuesday to $72.83 a barrel, the highest since November 2014.

“Geopolitical risks … kept investors on their toes. U.S. Secretary of State Pompeo demanded that Iran halt all uranium enrichment and give nuclear inspectors access to the entire country,” ANZ said in a note.

“However, investors are mindful of upcoming talks between Russia and Saudi Arabia about whether they should look at a controlled relaxation of over-compliance with their output cut agreement.”

OPEC may decide to raise oil output as soon as June due to worries over Iranian and Venezuelan supply and after Washington raised concerns the oil rally was going too far, OPEC and oil industry sources familiar with the discussions told Reuters.

The OPEC-led supply curbs have largely cleared an inventory surplus in industrialized countries based on the deal’s original goals, and stocks continue to decline.

Rising supply in the United States, where shale production is forecast to hit a record high in June, has limited the upward move in prices.

$80 dollar oil not out of the question, says pro. Here's why

$80 dollar oil not out of the question, says pro. Here’s why  

Concerns about a potential drop in Iranian oil exports following Washington’s exit from a nuclear arms control deal with Tehran have driven prices to multi-year highs.

On Monday, the United States demanded Iran make sweeping changes – from dropping its nuclear program to pulling out of the Syrian civil war – or face severe economic sanctions.

Iran dismissed Washington’s ultimatum and one senior Iranian official said it showed the United States is seeking “regime change” in Iran.

U.S. crude and distillate stockpiles fell last week, while gasoline inventories increased unexpectedly, data from industry group the American Petroleum Institute showed on Tuesday.

Trump’s sanctions on Iran may be creating an oil trading boom — in China

CNBC

  • Trade in Chinese yuan-denominated crude oil futures has jumped since President Donald Trump pulled the U.S. out of the Iran nuclear deal.
  • There is speculation that restrictions on Iranian oil sales and the lack of access to dollar financing will spur demand for the Shanghai-listed derivatives.

A clerk counts stacks of Chinese yuan at a bank in Beijing, China.

Getty Images
A clerk counts stacks of Chinese yuan at a bank in Beijing, China.

Trade in Chinese yuan-denominated crude oil futures has surged since President Donald Trump pulled the U.S. out of the Iran nuclear deal.

Launched on March 26, crude oil futures on the Shanghai International Energy Exchange (INE) were met with fanfare — and skepticism about how much a state-managed marketplace could displace the well-established crude trade in the New York Mercantile Exchange’s West Texas Intermediate and the Intercontinental Exchange’s Brent futures.

“Beijing ‘s attempts to ‘internationalize’ the contract appear to have paid off.”-BMI Research

But Trump’s move to reimpose sanctions on Iran may have spurred interest in the Chinese oil futures. Last Wednesday, daily trade volumes in INE oil futures hit a record of over 240,000 lots, double what they were on Tuesday when news of the renewed sanctions broke.

“There has been speculation that restrictions on Iranian oil sales and the lack of access to dollar financing will boost demand for yuan-denominated Shanghai futures,” said BMI Research in a note on Monday. “With China deepening its energy ties with Iran and given Beijing’s desire both to support the contact and — relatedly — to further internationalize the use of its currency, payment in yuan and benchmarking against Shanghai futures would seem logical.”

Veteran oil trader John Driscoll told CNBC last week that Iranian traders have the option of trading in Chinese yuan-denominated crude oil futures on the Shanghai International Energy Exchange — circumventing any restrictions on dollar-denominated trade and U.S. banks.

Doubts about how long it will last

Even so, some industry watchers remain skeptical over the long-term impact Iran will have on the Chinese futures, as Iranian crude is not deliverable into the Shanghai oil contract.

Even so, interest in the Shanghai oil futures have surpassed expectations, with Chinese state-owned companies and foreign interests taking part in the trade.

At least one oil sales agreement has been signed with state-owned major Sinopec, Reuters reported.

“Concerns over heavy state dominance in the oil sector does not appear to be dampening participation in the contract, neither does its denomination in yuan and the added FX risks this brings,” said BMI, adding that the futures are gaining tracing.

“Beijing ‘s attempts to ‘internationalize’ the contract appear to have paid off,” it added.