Published: Fri, June 22, 2018
Money | By Ethel Goodwin

Position-Squaring Ahead of OPEC Meeting Boosting Prices

Position-Squaring Ahead of OPEC Meeting Boosting Prices

At stake is the fate of an 18-month-old supply-cut deal between members of the Organization of the Petroleum Exporting Countries and allied countries that has cleared a global oil glut and lifted crude prices.

Saudi Arabia is ready to add back production it had agreed to curb in 2016, even though it is benefiting hugely from a almost 75% spike in oil prices.

Saudi Oil Minister Khalid al-Falih said Friday that an OPEC committee ahead of the official meeting had agreed "to recommend releasing the equivalent of 1 million barrels or thereabout to the market". Iranian Oil Minister Bijan Zanganeh said Tuesday that Trump was responsible for the surge in oil prices after applying sanctions against Iran and Venezuela.

The final production hike is expected to be less than the one million barrels as many producers may struggle to increase production.

Trump's involvement in pressing for OPEC to act - which in addition to his tweets include a behind-the-scenes request for a 1 million-barrel-a-day supply hike - could make it hard for Tehran to accept a compromise.

"Globally, crude prices have gone beyond the threshold, which can be sustained by the world, particularly countries like India, which is a key driver of world economy", Mr. Pradhan said at an OPEC conference in Vienna.

"Saudi Arabia and Russian Federation continued to push for a relaxation in production constraints, going against many other members' wishes", ANZ bank said on Wednesday.

The tentative increase is less than many market participants feared, and helped buoy oil prices back above $75 a barrel from less than $73 a barrel earlier this week.

In an historic agreement in late 2016 the OPEC+ group of 24 nations made a decision to cut 1.8 million barrels of production to revive the oil market from its biggest slump in a generation. Brent, the worldwide benchmark, was up 1.85% to $74.80 a barrel.

"What strikes me most is the great alignment, the very strong alignment between the interests of producers and consumers and many people underestimate how much alignment of interests there is between producers and consumers of petroleum", he said in his speech.

Ultimately, Saudi Arabia persuaded Iran to cooperate with the plan to cut output, following calls from major consumers to curb rising fuel costs.

The move comes amid soaring crude prices and output disruptions in several member countries, including Venezuela, Iran and Angola.

"We want to prevent the shortage and the squeeze that we saw in 2007-2008", Falih said, referring to a time when oil rallied close to $150 per barrel.

Domestic crude oil production falls by 2.95%.

"There was a lot of anticipation in the market that there was going to be a lot of new oil coming to market, and that isn't going to happen, at least for now", said John Kilduff, a partner at Again Capital.

Analysts have called this week's OPEC talks the most fractious and politically charged in years.

The cartel's largest producer, Saudi Arabia, is seen to be open to higher production but Iran has been hesitant.

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