Oil rises ahead of OPEC meeting while trade disputes loom over markets

Muriel Colon
June 22, 2018

The accord is a much-needed show of unity after Iranian oil minister Bijan Namdar Zanganeh walked out of a meeting on Thursday evening, predicting that Opec wouldn't be able to convince him to back an increase. Oil prices stabilized on Wednesday, with the Brent crude unchanged at $75 per barrel.

The cartel has overcome opposition from Iran and will raise output by one million barrels per day.

But it remains to be seen what kind of compromise could emerge, given Iran's deep aversion to any attempt by OPEC allies to offset its expected production losses as a result of the impending USA sanctions.

Iran has so far been the main barrier to a deal, with Zanganeh saying OPEC should not yield to pressure from US President Donald Trump to raise output.

OPEC is meeting in Vienna on Friday and Saturday and is expected to discuss potentially raising crude oil production now that prices have stabilized so far in 2018.

Iran signalled on Wednesday it could compromise on a small increase in OPEC oil output when the group meets this week, as Saudi Arabia scrambled to convince fellow members of the need for a larger rise in production.

Saudi Arabia and non-Opec Russia have said a production increase of about 1 million barrels per day (bpd) or around 1% of global supply had become a near-consensus proposal for the group and its allies.

Ecuador said OPEC and its allies could agree to a compromise increase in output of around 0.5-0.6 million bpd.

Riyadh has said it is ready "to mitigate the effects of any supply shortages" from U.S. sanctions on Iran's oil.

Saudi oil minister Khalid Al-Falih told reporters this morning there would not be an immediate flood of oil into the market, suggesting the impact would not be seen until the end of the summer, the Guardian reports.

"While we are not in favour of prices as low as $30 per barrel, we also do not support the prevailing high price which dent our fiscal balance and undermine our development process", Mr. Pradhan added.

That may seem insignificant in a global supply of 98 million barrels a day, but critically it would reverse reductions that the same countries approved in late 2016, helping push crude higher by more than 50 percent.

Unlike Iran, both Russian Federation and Saudi Arabia now have ample room to increase production, analysts say. If we lose a million bpd of output from Venezuela and Iran in the fourth quarter, where will all these barrels come from? "OPEC is not part of the Department of Energy of the United States".

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

Zangeneh also said on Friday OPEC would change the structure of the current deal, but did not elaborate. A big OPEC deal- adding more than 1 million barrels - could cause prices to dip into the $2.60s or $2.70s this summer, he said.

"OPEC is listening to consumers", Bob Dudley, the chief executive of BP Plc, said on the sidelines of the OPEC conference in Vienna.

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