OPEC leaders agreed to boost crude production at their semi-annual meeting in Vienna Friday by making changes in compliance with previous pacts, but made no mention of the total amount of oil that would find its way to the market. Crude prices rose.
Leaders from the Organisation of the Petroleum Exporting Countries, led by Saudi Arabia, the world's largest producer, and its non-member ally, Russia, pushed through an agreement that ends the group's previous pact to trim supply by 1.2 million barrels each day to "re-balance" global crude markets. However, a combination of sanctions and a lack of investment has meant some members, particularly Iran and Venezuela, have been pumping well under their agreed compliance rates, taking the cut to 1.8 million barrels a day. Friday's agreement would bring compliance to that agreement back to 100%, meaning an extra 600,000 or 700,000 barrels will enter the market on a net basis. OPEC provided no specifics on allocations per country.
"We did not mention a number, but you can do the math," OPEC president and UAE Energy Minister Suhail Al Mazrouei said during the group's official press conference. "The (official report) recognizes the difference between compliance and where we are today is about 1 million barrels, but we did not target that number, we targeted 100% compliance."
"We are not targeting a price and we will never target a price, what we are targeting it market stability," he added.
The unknown net production increase, which could be between 600,000 barrels and 700,000 barrels a day, boosted prices in early New York trading, with Brent crude futures contracts for August delivery, the global benchmark, rising $1.36 from their previous close to $74.41 a barrel while West Texas Intermediate contracts for August rose $1.69 to $67.23 a barrel.
So Hike Production By 700,000 Barrels/Day is now bullish? #OOTT Maybe Trump has to unleash a few more tweets to slam oil. Otherwise, the broke Americans consumer will not be feeling so happy into midterms. pic.twitter.com/KhZDDbrpSe— Alastair Williamson (@StockBoardAsset) June 22, 2018
Earlier in the session, multiple media outlets reported that OPEC would pump an extra 1 million barrels but would share the increase among all members. Because some producers, including Iran, unable to sell more crude due to U.S. sanctions, and others, such as Venezuela, lacking the investment to boost output, the ultimate change in terms of supply to the market will likely be about 600,000 barrels a day.
That compares with the estimated 1.8 million barrels a day that were removed under the previous agreement, reached in December 2016 along with Russia.
The previous output cap, as well as unprecedented co-operation from member states, pushed global crude prices to a near four-year high of $80 a barrel last month and lifted U.S. gasoline prices closer to $3 a gallon in the days prior to the Memorial Day holiday in May.
it seems they always go over the levels anyway, over compliance, under compliance, the million dollar question is, who will cheat more to make up the real barrels to be 1mln bpd. #russia #saudiarabia or others. Either way more #oil coming to market. #oott $wti $bno #energy $xle https://t.co/nqIcrfxbK4— Maleeha Bengali (@MaleehaMBCC) June 22, 2018
Saudi Arabia's Energy Minister, Khalid Al-Falih, said yesterday that global consumers were demanding more crude supply and that he was confident a deal could be struck that would satisfy all stakeholders and declared global markets "re-balanced" even as he conceded that the cartel's mission wasn't yet accomplished.
"The reality of the matter is the increase will be gradual," Falih said Friday. "Not all countries are able to produce and not all customers are able to receive the additional crude. So it is naturally going to be phased over time."
A further sticking point beyond the hard numbers of supply, however, is linked to reports that Iran wish to include a reference to the U.S. sanctions, spearheaded by U.S. President Donald Trump in the face of overtures from both German Chancellor Angela Merkel and French President Emmanuel Macron, in OPEC's final communique, something both Saudi Arabia and the broader carter would like to avoid.
"This is not a political organization, this is a commercial organization," Mazrouei said Thursday. "We are not going to politicize the discussion, we will make good project like we do always. I'm confident that this group will always do the right thing."
No mention of the sanctions was made in the final text.