Published: Wed, September 26, 2018
Money | By Ethel Goodwin

Saudi Says Door Open To Future Oil Output Hike

Saudi Says Door Open To Future Oil Output Hike

Brent oil soared Monday close to $81, reaching the highest level since November 2014 after OPEC and other global producers snubbed pressure from US President Donald Trump to dampen prices.

Oil at US$100 may not be sustainable in the longer-term because demand may be threatened by the U.S.

Oil rallied after the Organization of Petroleum Exporting Countries and its partners stopped short of pledging immediate production increases even though looming USA sanctions on Iran have started removing barrels from the market.

Higher gasoline prices for USA consumers could create a political headache for Trump before November mid-term congressional elections.

The price rally mainly stemmed from a decline in oil exports from OPEC member Iran due to fresh United States sanctions.

Saudi energy minister Khalid al-Falih said at a press conference in Algiers that he did not "influence prices".

OPEC insisted throughout that oil supplies were adequate, Saudi Arabia and other members would provide more oil, if refiners asked, but that prices were being driven by non-fundamental factors. "The OPEC meeting on 3rd December will set the agenda for the next year's price mark".

"This is the oil market's response to the OPEC+ group's refusal to step up its oil production", said Carsten Fritsch, commodities analyst at Commerzbank in Frankfurt.

Sunday's meeting in Algiers brought together OPEC oil ministers and non-OPEC signatories to the 2016 agreement, as they seek to extend their cooperation.

"It is now increasingly evident, that in the face of producers reluctant to raise output, the market will be confronted with supply gaps in the next three-six months that it will need to resolve through higher oil prices", BNP Paribas oil strategist Harry Tchilinguirian told Reuters Global Oil, as quoted by Reuters. The U.S. benchmark, West Texas Intermediate, has risen by 17% since the start of the year, reaching more than $75/bbl.

OPEC in December 2016 concluded an agreement with non-member states - including Russian Federation - to reduce output in order to arrest sliding prices.

J.P. Morgan said in its latest market outlook, published on Friday, that "a spike to $90 per barrel is likely" for oil prices in the coming months due to the Iran sanctions. OPEC's own estimates, according to its secondary sources such as researchers and ship-trackers, put Iranian output at 3.58 million bpd.

“While Citi is pricing in Brent (ICE) crude at around $80 for the quarter ahead, balances are precarious and the lack of spare capacity could see crude pricing well above $90 or even $100 should all of the potential risk in the market materialize, ” analysts including Ed Morse said in the note.

Mohammad Barkindo, OPEC secretary general, said in Madrid on Tuesday OPEC and its partners should cooperate to ensure they do not "fall from one crisis to another".

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