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.

OPEC is about to make a major oil market decision. Here’s how next week’s meeting could end

CNBC

  • OPEC, Russia and other producers are widely expected to begin easing their deal to limit output at a meeting in Vienna next week.
  • The gathering is shaping up to be a contentious event, with lines drawn between countries that can benefit from an output boost and those with little to gain.
  • Despite the discord, analysts think OPEC will reach a deal to moderately raise output over several months, with an option to hike further.
Khalid Bin Abdulaziz Al-Falih, Saudi Arabia's energy minister and president of OPEC, speaks as Alexander Novak, Russia's energy minister, left, listens during a news conference following the 172nd Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, on Thursday, May 25, 2017.

Akos Stiller | Bloomberg | Getty Images
Khalid Bin Abdulaziz Al-Falih, Saudi Arabia’s energy minister and president of OPEC, speaks as Alexander Novak, Russia’s energy minister, left, listens during a news conference following the 172nd Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, on Thursday, May 25, 2017.

A meeting of the world’s biggest oil producers is shaping up to be a contentious event, but analysts think the fractious group will reach consensus on their historic agreement to manage the crude market.

OPEC and other exporters including Russia appear poised to ease voluntary production limits, which have helped shrink a global oil glut since they went into effect in January 2017. The deal isn’t set to expire until the end of the year, but rising prices fueled largely by geopolitical risks have forced the producers to consider their exit strategy.

The agreement calls on OPEC and other producers to keep 1.8 million barrels a day off the market, but they’ve actually been cutting deeper than that.

OPEC meetings are closely watched because the producer group pumps about 40 percent of the world’s oil, so its policy decisions can have major implications across the energy mix. President Donald Trump, perhaps wary of the average U.S. gasoline price hovering near $3 a gallon, has recently blamed OPEC for oil prices, which recently hit 3½-year highs.

Next week’s meeting is also thornier than past gatherings because OPEC’s current production cuts are not limited to the 14-nation cartel. Russia and several other producers have also been throttling back output, and top OPEC producer Saudi Arabia needs to keep the young alliance together, or its ability to manage the market would be diminished.

Hadley Gamble previews the upcoming OPEC meeting

Hadley Gamble previews the upcoming OPEC meeting  

The Saudis will have to consider their partnership with Russia, their relationship with the United States, and simmering tensions with Iran, OPEC’s third-biggest producer and Riyadh’s chief regional rival.

“The decisions that are going to be made in Vienna are going to be more geopolitical this time than normal,” said Dan Yergin, vice chairman of IHS Markit and a Pulitzer Prize-winning chronicler of the petroleum industry.

OPEC tensions rise

Heading into the meeting, a rift has opened among producers with competing interests, raising fears of a repeat of OPEC’s June 2011 meeting, when members left Vienna without agreeing on a shared output policy.

Saudi Arabia and Russia, in particular, have spare capacity and could capture market share by pumping more. Both have expressed support for hiking output.

However, many producers are tapped out and would prefer to hold back supply, which supports prices. Those nations include Venezuela, where output has cratered amid a prolonged economic crisis, and Iran, which is facing renewed U.S. sanctions aimed at cutting off its oil exports.

But they also include Iraq, OPEC’s second-biggest producer. On Monday, the country’s oil minister, Jabbar al-Luaibi, said hiking output could “damage the international markets” and warned unilateral efforts by some members to change the policy might violate the deal.

Luaibi appeared to be responding to reports that Washington asked Saudi Arabia to fill the gap left by a drop in Iranian exports before Trump abandoned the Iran nuclear deal and slapped wide-ranging sanctions on the country.

Yergin said he believes the Saudis would back a policy that keeps international benchmark Brent crude oil prices in the $75-$85 per barrel range, which would support their objectives, including maintaining close ties with the Trump administration.

“They really wanted to see the U.S. withdraw from the Iranian deal, and that means less Iranian oil … so you have to put more oil into the market,” he told CNBC on Wednesday.

Deal remains likely

The public bickering could continue as members aim to negotiate the best possible deal for their country. But despite the discord, analysts think the group will nevertheless reach a deal to begin easing the production caps — and any increase will likely be relatively limited and gradual.

Ed Morse, Citigroup’s head of global commodities research, told CNBC that the Saudis, along with Kuwait and the United Arab Emirates, will likely push for a 500,000 barrel per day hike, leaving another half a million barrel increase until a future review of the market, perhaps in September.

That aligns with the view at RBC Capital Markets, where the firm’s global head of commodity strategy, Helima Croft, also sees OPEC erring on the side of caution with a 500,000 bpd bump. She thinks the cartel will signal a strong willingness to take further action, but she remains wary of tensions ahead of the meeting.

The OPEC boost 'is going to come' as the market is very tight: Expert

OPEC may boost production as the oil market is very tight: Expert  

“Nonetheless, we could envision a scenario where the meeting proves to be so antagonistic because of deep divisions over production and sanctions that they fail to reach a consensus, leaving big producers like Saudi Arabia and Russia to act on their own,” RBC said in a research note.

Michael Cohen, head of energy markets research at Barclays, said that would push oil prices into the $80-$85 range, but he thinks the scenario is unlikely. He forecasts OPEC will increase output by 700,000 to 800,000 bpd through the end of the year. If that happens, Barclays would stick to its view that Brent will average $70 a barrel this year and $65 next year.

Francisco Blanch, Bank of America Merrill Lynch’s head of global commodities research, sees Russia, Saudi Arabia, UAE and Kuwait gradually increasing output by about 200,000 bpd each quarter, eventually adding 1.2 million bpd by the end of next year. In his view, the producers will make the adjustments based on oil market data to prevent a price spike.

“If the cartel aggressively lifts output over the next six months, balances will quickly shift into a surplus, pushing prices lower,” Merrill Lynch said in a research note. “Yet the uncertainty around Iran and Venezuela also creates a difficult path ahead, as it opens the door to multiple OPEC+ responses.”

Oil prices mixed amid worries over growing supplies

CNBC

  • Oil prices were mixed in early Asian trade.
  • Saudi Arabia and Russia have discussed raising OPEC and non-OPEC oil production by 1 million barrels per day to counter potential supply shortfalls from Venezuela and Iran.
  • Credit Suisse analysts said even if Russia and OPEC producers raise output, they would likely only add an additional 500,000 bpd.

An oil pumpjack operates near Williston, North Dakota.

Andrew Cullen | Reuters
An oil pumpjack operates near Williston, North Dakota.

Oil prices were mixed in early Asian trade on Wednesday, with worries that Saudi Arabia and Russia will pump more crude weighing on the market.

Saudi Arabia and Russia have discussed raising OPEC and non-OPEC oil production by 1 million barrels per day (bpd) to counter potential supply shortfalls from Venezuela and Iran.

Brent crude was down 1 cent at $75.38 a barrel by 0015 GMT, after settling up 9 cents on Tuesday.

U.S. West Texas Intermediate crude was up 13 cents, or 0.2 percent,at $66.86 a barrel, having earlier settled down $1.15.

Credit Suisse analysts on Tuesday said even if Russia and OPEC producers raise output, they would likely only add an additional 500,000 bpd, which would leave inventories in the most developed countries short of the five-year average by the end of 2018.

Charts show more pain possible for oil

Charts show more pain possible for oil  

The Organization of the Petroleum Exporting Countries is due to meet in Vienna on June 22.

Falling stocks and a stronger U.S. dollar index also weighed on oil prices. U.S. stock markets sank more than 1 percent, while the dollar wobbled at a 10-month high against the euro. A stronger dollar makes greenback-denominated commodities more expensive for holders of other currencies.

U.S. oil got some support as U.S. crude inventories likely fell by 1.8 million barrels last week, a preliminary Reuters poll showed on Tuesday.

Industry group American Petroleum Institute (API) releases its weekly oil data at 2030 GMT, followed by the report by U.S. Energy Department’s Energy Information Administration on Thursday, both delayed a day because of the federal Memorial Day holiday on Monday.

Oil prices mixed, but pressure builds on expected crude output increase

CNBC

  • Oil prices were mixed in Asian trading on Tuesday.
  • Prices stayed under pressure from expectations that Saudi Arabia and Russia would pump more crude to ease a potential shortfall in supply.
  • Saudi Arabia and Russia have discussed raising OPEC and non-OPEC oil production by some 1 million barrels per day.

Oil pumps wells Monterey Shale fracking

Getty Images

Oil prices were mixed in Asian trading on Tuesday, but remained under pressure from expectations that Saudi Arabia and Russia would pump more crude to ease a potential shortfall in supply.

Brent crude futures were up 21 cents, or 0.28 percent, at $75.51 a barrel at 0635 GMT, after settling at their lowest since May 8 at $75.30.

U.S. West Texas Intermediate (WTI) crude was down $1.11, or 1.64 percent, at $66.77 a barrel, sitting around its lowest since April 17.

“Investors have started pricing in the likelihood of Saudi Arabia and Russia increasing crude oil production,” ANZ Bank said in a note.

“However, doubt remains, with any agreement to be finalized at the June OPEC meeting.”

Concerns that Saudi Arabia and Russia could boost output have put downward pressures on oil prices, along with rising oil production in the United States.

Saudi Arabia and Russia have discussed raising OPEC and non-OPEC oil production by some 1 million barrels per day to make up potential supply shortfalls from Venezuela and Iran.

The Organization of the Petroleum Exporting Countries (OPEC) is due to meet in Vienna on June 22.

Prepare for another big oil rally this summer: RBC's Helima Croft

Prepare for another big oil rally this summer: RBC’s Helima Croft  

The spread between Brent and WTI stands at around $8.7 a barrel, the widest since March 2015 due to the depressed price of U.S. crude compared to Brent.

“The way I see it is that WTI prices are stabilizing rather than falling after rising sharply in recent weeks because the prices were expected to be in the range of $55-$65 a barrel,” said Vincent Hwang, commodity analyst at NH Investment & Securities in Seoul.

“But at the same time there are some worries over a fall in U.S. oil demand if more Middle East crude supplies flow into the market,” Hwang said.

Meanwhile, record crude oil volumes from the United States are expected to head to Asia in coming months, nibbling away the market share of OPEC and Russia.

U.S. oil production has surged by more than 27 percent in the last two years to 10.73 million barrels per day (bpd). That puts the United States ahead of top exporter Saudi Arabia, and only Russia pumps out more, at around 11 million bpd.

Oil slumps as OPEC, Russia look to raise output amid US surge

CNBC

  • Oil prices slumped on Monday, extending steep declines from Friday.
  • Saudi Arabia as well as top producer Russia said on Friday they were discussing raising oil production by some 1 million bpd.
  • Surging U.S. crude production also showed no sign of abating.

A pump jack and pipes at an oil field near Bakersfield, California.

Lucy Nicholson | Reuters
A pump jack and pipes at an oil field near Bakersfield, California.

Oil prices slumped on Monday, extending steep declines from Friday, as Saudi Arabia and Russia said they may increase supplies and as U.S. production gains show no signs of abating.

Brent crude futures were at $75.09 per barrel at 0452 GMT, down $1.35, or 1.8 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $66.22 a barrel, down $1.66, or 2.5 percent.

Brent and WTI have fallen by 6.4 percent and 9.1 percent respectively from peaks touched earlier in May.

In China, Shanghai crude oil futures tumbled by 4.8 percent to 457.7 yuan ($71.64) per barrel.

The Organization of the Petroleum Exporting Countries (OPEC), as well as top producer but non-OPEC member Russia, started withholding supplies in 2017 to tighten the market and prop up prices, which in 2016 fell to their lowest in more than a decade at less than $30 per barrel.

But prices have soared since the start of the cuts last year, with Brent breaking through $80 per barrel earlier in May, triggering concerns that high prices would crimp economic growth and stoke inflation.

“The pace of the recent rise in oil prices has sparked a debate among investors on whether this poses downside risks to global growth,” Chetan Ahya, chief economist at U.S. bank Morgan Stanley, wrote over the weekend in a note.

$60 a barrel may be the new oil sweet spot, says expert

$60 a barrel may be the new oil sweet spot, says expert  

To address potential supply shortfalls, Saudi Arabia, de-facto leader of producer cartel OPEC, as well as top producer Russia said on Friday they were discussing raising oil production by some 1 million bpd.

“Crude oil prices collapsed … after reports emerged that Saudi Arabia and Russia had agreed to increase crude oil production in the second-half of the year to make up for losses elsewhere under the production cut agreement,” ANZ bank said on Monday.

Meanwhile, surging U.S. crude production also showed no sign of abating as drillers continue to expand their search for new oil fields to exploit.

U.S. energy companies added 15 rigs looking for new oil in the week ended May 25, bringing the rig-count to 859, the highest level since 2015, in a strong indicator that American crude production will continue to rise.

U.S. crude production has already surged by more than 27 percent in the last two years, to 10.73 million barrels per day (bpd), bringing its output ever closer to Russia’s 11 million bpd.

“Oil prices are showing symptoms of a falling knife as investors are jittery on the prospect of increased production from three of the world’s top producers,” Singapore-based brokerage Phillip Futures said on Monday.