Oil prices up nearly 3 pct as OPEC agrees to raise output

Dwayne Harmon
June 22, 2018

In a night of drama in Vienna, the Joint Ministerial Monitoring Committee, which recommends policy to the group, reached an agreement despite Bijan Zanganeh, the Iranian oil minister, walking out of the meeting and predicting Opec won't reach a final deal when it meets formally on Friday.

Oil prices rose in early Asian trading on Wednesday, supported by a drop in US commercial crude inventories reported by the American Petroleum Institute (API).

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 U.S.is in the process of re-imposing sanctions over that country's nuclear program.

Traditional Saudi allies - the United Arab Emirates, Kuwait, Oman and Bahrain - believe Saudi Arabia was too quick to respond to USA calls for higher production, and have been rattled by Riyadh's close coordination with non-Opec Russia, sources said.

Riyadh has said it is ready "to mitigate the effects of any supply shortages" from USA sanctions on Iran's oil.

Russian Federation has proposed Opec and non-Opec raise output by 1.5 million barrels per day (bpd), effectively wiping out existing production cuts of 1.8 million bpd that have helped rebalance the market in the past 18 months and lifted oil to $75 per barrel. USA investment bank Jefferies said an increase in "the range of 450-750,000 bpd seems the most likely outcome" of the meeting. Brent, the global benchmark, was up 1.85% to $74.80 a barrel.

"I don't want to talk about contingencies... we are assuming the sound of reason will ultimately prevail".

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That may seem insignificant in a global supply of 98 million barrels a day, but critically it would reverse reductions that the same countries approved in late 2016, helping push crude higher by more than 50 percent.

Analysts expect the group will consider an increase of somewhere around 1 million barrels a day.

Oil prices fell 2% after the Saudi minister spoke, before recovering slightly. Segun Ajibola expressed concern over Nigeria's inability to determine global realities, adding that outcome of market decision could frustrate implementation of the budget, considering that oil revenue remained the country's basic income.The re-balance in the oil sector had aided Nigeria to exit economic shortfall and boosted reserves but Ajibola was anxious about the country's continuous dependence on a single source of revenue. The measure has helped rebalance the market in the past 18 months and lifted oil to around $74 per barrel from as low as $27 in 2016.

More important to Saudi Arabia than extra petrodollars is containing Iran, its arch-nemesis.

The cartel's largest producer, Saudi Arabia, is seen to be open to higher production but Iran has been hesitant. "One thing you can be assured of is: we will be responsive, we will release supplies to make sure there's no shortage".

-With assistance from Salma El Wardany, Annmarie Hordern, Manus Cranny, Elena Mazneva, Laura Hurst, Javier Blas, Grant Smith, Francois de Beaupuy and Golnar Motevalli. To contact the reporters on this story: Wael Mahdi in Kuwait at wmahdi@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net; Javier Blas in Vienna at jblas3@bloomberg.net. Off-topic, inappropriate or insulting comments will be removed.

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