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 rise on ongoing Venezuelan supply trouble

CNBC

  • Oil prices rose on Friday, driven up as Venezuela struggles to meet its supply obligations.
  • One of the key features of oil markets recently has been the widening discount of U.S. WTI crude versus Brent.
  • Brent has been pushed up by production cuts led by OPEC and Russia.

An oil pump jack in Gonzales, Texas.

Getty Images
An oil pump jack in Gonzales, Texas.

Oil prices rose on Friday, driven up as Venezuela struggles to meet its supply obligations and by ongoing voluntary output cuts led by producer cartel OPEC.

Brent crude futures, the international benchmark for oil prices, were at $77.45 per barrel at 0051 GMT, up 13 cents, or 0.2 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were up 19 cents, or 0.3 percent, at $66.14 a barrel.

Prices were pushed up by supply trouble in Venezuela, where state-owned oil firm PDVSA is struggling to clear a backlog of around 24 million barrels of crude waiting to be shipped to customers.

Out of sync

Despite this, oil markets are not unanimously bullish.

One of the key features of oil markets recently has been the widening discount of U.S. WTI crude versus Brent, which has almost quadrupled since February to $11.40 per barrel, its steepest discount since 2015.

“This is occurring because of the rapid increase in production from U.S.shale coupled with the tightening of supplies elsewhere through the actions of OPEC and Russia,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.

Brent has been pushed up by voluntary production cuts led by the Middle East dominated producer cartel of the Organization of the Petroleum Exporting Countries (OPEC) and by top producer Russia, which were put in place in 2017.

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The group and Russia are due to meet at its headquarters in Vienna on June 22 to discuss production policy.

Looming new U.S. sanctions against major oil exporter Iran have further tightened international oil markets.

In North America, however, surging U.S. output has pressured WTI crude futures.

U.S. crude oil production hit another record last week at 10.8 million barrels per day (bpd).

That’s a 28 percent gain in two years, or an average 2.3 percent growth rate per month since mid-2016 and puts the United States close to becoming the world’s biggest crude oil producer, edging nearer to the 11 million bpd churned out by Russia.

Oil prices rise on Venezuelan supply troubles, but US output surges

CNBC

  • Oil prices rose on Thursday to shake off some of the previous session’s losses.
  • Venezuela, an OPEC member, is nearly a month behind in shipping crude to customers from its main oil export port, according to Reuters data.
  • Venezuela’s supply trouble comes amid production cuts by OPEC to tighten the market and prop up prices.

Oil fracking

David McNew | Getty Images

Oil prices rose on Thursday to shake off some of the previous session’s losses, supported by plunging exports by OPEC-member Venezuela.

Brent crude futures were up 33 cents, or 0.4 percent, to $75.69 a barrel at 0101 GMT.

U.S. West Texas Intermediate (WTI) crude was up 38 cents, or 0.6 percent, at $65.11 a barrel. It ended the previous session 1.2 percent lower at $64.73 a barrel.

Venezuela, a member of the Organization of the Petroleum Exporting Countries (OPEC), is nearly a month behind in shipping crude to customers from its main oil export port, according to Reuters data, as chronic delays threaten to breach state-run PDVSA’s crude supply contracts if they are not quickly cleared.

Tankers waiting to load more than 24 million barrels of crude, almost as much as PDVSA shipped in April, are sitting off the country’s main oil port, according to the data. The backlog is so severe, PDVSA has told some customers it may declare force majeure, allowing it to temporarily halt contracts, if they do not accept new delivery terms.

“OPEC supply changes remain the biggest uncertainties in the market,” said Xi Jianrui, senior crude analyst with oil consultancy JLC said.

Crude oil inventories up 2.1 million barrels

Crude oil inventories up 2.1 million barrels  

Venezuela’s supply trouble comes amid voluntary production cuts by OPEC which have been in place since 2017 in order to tighten the market and prop up prices.

The group is due to meet at its headquarters in Vienna, together with top producer but non-OPEC member Russia, on June 22 to discuss production policy.

OPEC-member Iraq said on Wednesday that a production increase was not on the table as the market was stable and prices good.

This comment followed an unofficial request from the United States asking OPEC’s de-facto leader Saudi Arabia to boost output.

Outside OPEC, however, there were ongoing signs of rising output. U.S. crude oil production hit another record last week at 10.8 million barrels per day (bpd). That’s a 28 percent gain in two years, or an average 2.3 percent growth rate per month since mid-2016.

Surging U.S. production has helped widen WTI’s discount to Brent to more than $10 per barrel.

The United States is close to becoming the world’s biggest crude oil producer, edging nearer to the 11 million bpd churned out by Russia, with exports also surging.

U.S. crude inventories also rose, gaining 2.1 million barrels in the week to June 1, to 436.6 million barrels, the Energy Information Administration said on Wednesday.

‘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 prices have been given a boost, but they could struggle to head higher

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  • Oil will be in a $55 to $75 per barrel range on a 12-month basis, said Manpreet Gill, head of FICC investment strategy at Standard Chartered Private Bank.
  • There’s been plenty of price-supportive news in the short term, but oil could struggle to head higher still, Gill said.
  • Concerns over Venezuela and impending U.S. sanctions on Iran have supported oil prices in recent weeks.

The 'basic demand-supply fundamentals' imply oil prices will dip

‘Basic demand-supply fundamentals’ imply oil prices will dip: Strategist  

Oil prices have climbed in recent weeks, but whether that rise will continue for longer could be in doubt.

“On a 12-month basis, which is the horizon we take, we think we’re more likely to be in sort of a $55 to $75 range, which is a little bit lower than where we are today,” Manpreet Gill, head of fixed income, currencies and commodities investment strategy at Standard Chartered Private Bank, told CNBC’s Sri Jegarajah.

“The reason for that is simply, when we look out beyond the next few months and really take that one-year view, we’re looking at the basic demand-supply fundamental. That’s what causes our bullish view all the way coming in over the past year or two. That’s what’s causing us to say, how much can this go if we start really looking beyond the next three months?” Gill said.

Prices have risen recently amid concerns over the impact of potential U.S. sanctions on Venezuela’s oil exports following a disputed election which saw Venezuelan President Nicolas Maduro re-elected. Also, an executive order that prohibited U.S. citizens from participating in the sale of Venezuelan receivables linked to oil was signed by U.S. President Donald Trump on Monday, Reuters reported.

U.S. West Texas Intermediate crude futures were up 20 cents, or 0.28 percent, at $72.44 per barrel. International benchmark Brent crudefutures were 13 cents, or 0.16 percent, higher at $79.35 during Asia afternoon trade on Tuesday.

Brent had crossed the $80 mark last week for the first time since November 2014.

View of an oil refinery in the Maracaibo lake, on May 2, 2018 in Maracaibo, Venezuela.

Federico Parra | AFP | Getty Images
View of an oil refinery in the Maracaibo lake, on May 2, 2018 in Maracaibo, Venezuela.

“The question for us is how much more can this price move, in the sense of how much more bad news can we get?” Gill said.

That was given how the demand-supply balance will begin to turn less supportive for oil in 2019, Gill said. “There [will be] much more supply relative to demand, so you’re not getting the same level of fundamental support,” he added.

In recent weeks, markets have been focused on the effect of impending U.S. sanctions on Iranian oil exports, which the Trump administration has repeatedly threatened to do. Trump had announced that he was pulling U.S. out of the Iran nuclear deal earlier this month.

More broadly, prices have firmed amid ongoing oil production cuts led by the Organization of Petroleum Exporting Countries.