Published: Fri, June 22, 2018
Business | By Pearl Harrison

OPEC on tightrope as output target talks prompt clash

OPEC on tightrope as output target talks prompt clash

Tensions between Iran and Saudi Arabia broke out days before OPEC's meeting on Friday in Vienna, with Tehran indicating it would probably not abide to the cartel's plans to cut production.

Benchmark Brent crude prices traded at $74.35 a barrel on Thursday morning in London.

While U.S. oil production may not be quite up to the levels of oil giants Russian Federation and Saudi Arabia, losing the Chinese market would certainly deal a blow to American oil producers, which ship more than $1 billion of oil per month to Beijing.

Falling production in Venezuela and Libya, as well as the risk of lower output from Iran as a result of USA sanctions, have all increased market worries of a supply shortage.

Iranian oil minister Bijan Namdar Zanganeh said as the group met Friday that "we are not here to receive instruction from President Trump and apply it and implement it".

Ahead of OPEC's policy meeting starting in Vienna on Friday, Saudi Oil Minister Khalid al-Falih proposed increasing crude production by 1 million barrels per day while warning of a likely global oil supply deficit for the rest of this year.

He said that there are "many, many options. and we will settle to one of those options".

Benchmark Brent crude jumped $2.19 a barrel, or nearly 3 percent, to a high of $75.24 before slipping to around $75 by 1305 GMT. We think that that will be probably too short of a supply situation, we can not allow it to happen.

Ministers have gathered in the Austrian capital to discuss a supply increase that would be equivalent to about 600,000 barrels a day, or 0.5 per cent of global supply. Ministers at the event have also indicated that Iran, which was expected to oppose an increase might now agree to a production hike.

Iraqi Oil Minister Jabar Al Luaibi said on Wednesday he hoped there would be agreement when Opec meets but added: "The oil market has not reached the level of stabilisation".

"Allocating to Saudi Arabia part of the quota of countries that cannot increase output could be a technical solution, but may not be a political one", Al-Falih said. In fact, traders have remained net-long since May 25 when Oil - US Crude traded near 7191.6; price has moved 5.9% lower since then.

Some analysts believe that Saudi Arabia needs a Brent price closer to $90 to cover its domestic spending but is feeling pressure from the United States to head off rising prices by boosting output.

That would effectively mean a modest boost from producers such as Saudi Arabia that has been cutting more deeply than planned despite production outages in Venezuela and Libya. "Now they monitor market dynamics, especially inventory level in the USA and China".

"We want to prevent the shortage and the squeeze that we saw in 2007-08", Falih said, referring to a time when shortages sent premium-crude-oil prices soaring to an unprecedented $150 per barrel and ushered in a major boom-bust cycle that devastated the oil sector for a decade.

-With assistance from Salma El Wardany, Annmarie Hordern, Manus Cranny, Elena Mazneva, Laura Hurst, Javier Blas, Grant Smith, Francois de Beaupuy and Golnar Motevalli. Off-topic, inappropriate or insulting comments will be removed.

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