The 174th Meeting of the Conference of the Organization of the Petroleum Exporting Countries (OPEC) was held in Vienna, on Friday, 22 June, while the 4th OPEC and non-OPEC Ministerial Meeting took place in the Austrian capital the next day.
“The Conference noted that the oil market situation has further improved over the past six months, with the global economy remaining strong, oil demand relatively robust, albeit with some uncertainties, and with the market rebalancing evidently continuing. Moreover, the return of more stability and more optimism to the industry has been welcomed by all stakeholders” OPEC has said in a statement.
The cartel of the major producers of crude agreed to a new oil output level that effectively increases production by almost 1 million barrels per day (bpd) in order to balance supply and demand in the second half of 2018.
Analysts had expected OPEC to announce an increase in production of 500,000 to 600,000 barrels per day with S&P Global Platts expecting a net output increase of around 700,000 bpd, largely met by Saudi Arabia. The oil production increase will partly undo a 1.2 million barrel cut Opec agreed on in late 2016 that boosted the price of the commodity.
(OPEC President, Suhail Mohamed Al Mazrouei, Minister of Energy & Industry of the U.A.E.)
The organization's President, Suhail Mohamed Al Mazrouei, Minister of Energy & Industry of the United Arab Emirates, said the cartel "never targets a price" but is instead concerned with market stability. He added OPEC is "not targeting to harm its customers" and that the agreement is a testimony to the fact that it "listens to customers when they have a concern."
Saudi Energy Minister Khalid Al-Falih said the kingdom-the top global exporter-was ready to increase production. “Saudi Arabia is unique. All of our spare capacity is available at short notice,” he said. However, he acknowledged that several of the cartel’s members have no capacity to pump more crude.
(Saudi Energy Minister Khalid Al-Falih Photo: AP)
Venezuela's oil production is plummeting. According to OPEC's secondary sources, the Latin America's oil production fell to an average of 1.392 million barrels per day in May, down another 42,000 bpd from a month earlier.
Meanwhile, the exports of Iran-OPEC’s third-largest producer- are due to be hit by the return of US sanctions. Observers are projecting Tehran's crude production could fall by about a third by the end of 2018.
Last week, the International Energy Agency (IEA) warned as many as 1.5 million barrels per day (bpd) could be lost from Venezuela and Iran by the end of 2019, which neither are in a position to increase supplies.
As analysts and traders are raising concerns about the limited amount of spare capacity in the market, the production increase may not mean immediately lower prices.
Reuters noted that oil prices have been on a roller-coaster ride over the last few years, with Brent- the international benchmark- trading above $100 a barrel for several years until 2014, dropping to almost $26 in 2016 and breaching the $80 a barrel threshold last month for the first time in over three years.
The group started withholding supply in 2017 and this year, amid strong demand, the market tightened significantly, triggering calls by consumers for higher supply.
Concerns about rising prices
Ahead of OPEC's policy meeting in on Friday, major oil importers such as the U.S., India and China all expressed alarm at the rising cost of crude. U.S. President Donald Trump tweeted his displeasure with current price levels and after the meeting took on the social media platform again to say: “Hope Opec will increase output substantially. Need to keep prices down!”
Divisions within the oil cartel threw the outcome into uncertainty up to the last minute. Saudi Arabia, and Russia sought to boost output again but Iran, Venezuela and Iraq also signaled they weren't on board with an increase.
(Russian Minister of Energy Alexander Novak Photo:TASS)
On Saturday, non-OPEC oil producers agreed to participate in the pact but a communique issued after their talks with the Vienna-based group did not give the details of how the production increase would be split and provided no concrete numbers. The agreement would be implemented in July.
"This decision is in line with the proposals that were worked out by the monitoring committee, which corresponds to today's ideas about what needs to be done on the market. I think that at this stage 1 mln barrels is reasonable," TASS news agency quoted Russian Minister of Energy Alexander Novak as saying.
Oil markets reacted positively to news that OPEC reached an agreement. U.S. West Texas Intermediate (WTI) crude futures finished Friday's session up 4.6 percent to $68.58 a barrel. The contract posted its biggest daily jump since November 2016. Brent crude, the international benchmark was up 3.4 percent, to $75.55 a barrel. It hit $80 a barrel last month before falling back.
OPEC will continue monitor the market, and the production cap would be adjusted when needed.