Saudis take oil consumers' side as OPEC nears pivotal talks

Oscar PerryJun 24, 2018

Ministers from the Organization of the Petroleum Exporting Countries and non-OPEC nations led by Russian Federation are meeting Friday and Saturday in Vienna, and it could be a hard and uncomfortable gathering.

In an historic agreement in late 2016 the OPEC+ group of 24 nations chose to cut 1.8 million barrels of production to revive the oil market from its biggest slump in a generation.

Global marker, Brent, traded above $100 a barrel for several years until 2014, dropping to nearly $26 in 2016 and then recovering to over $80 last month.

However, Saudi Energy Minister Khalid al-Falih appears to have convinced his Iranian peer Bijan Zanganeh to support the increase just hours before Friday's OPEC meeting.

He said a recent rise in oil prices was mainly the fault of Washington, which imposed new sanctions on OPEC members Iran and Venezuela.

Saudi Arabia and Russia's desire to roll back production cuts has encountered fierce opposition from Iran and Venezuela, while US President Donald Trump has lobbed the occasional rhetorical bomb at the cartel on behalf of consumers.

Because the group had been producing below that level, that means an increase in production of "a little bit less than 1 million barrels", the Emirati minister said. "We expect from Opec and its members a commitment to step in (and) more than fill the gap to ensure sustainable prices", Indian oil minister Dharmendra Pradhan said at a seminar in Vienna.

Essner is betting that the Vienna meeting will yield an agreement to boost production by 500,000 to 800,000 barrels a day, far below the 1.5 million barrel figure floated recently by Russia's oil minister, Alexander Novak.

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Zanganeh highlighted that Iran opposes any increase of oil production since the issue was not on the agenda of OPEC meeting.

Opec sources said the final compromise also depended on whether Opec agreed to mention U.S. sanctions in the group's communique, an important point for Iran, which has blamed United States measures against Tehran for the recent rise in oil prices.

The cartel's largest producer, Saudi Arabia, is seen to be open to higher production but Iran has been hesitant. He also said the USA oil output boom would slow due to pipeline shortages in the next two years.

Jabar Ali al-Luaibi said as ministers from the Organization of the Petroleum Exporting Countries gathered Friday that "there is a lot of chance" of an agreement.

Traders said a drop in Libyan supplies due to the collapse of an estimated 400,000-barrel storage tank also helped push up prices.

Some analysts believe that Saudi Arabia needs a Brent price closer to $90 a barrel to cover its domestic spending but is feeling pressure from the United States to head off rising prices by boosting output. I reckon the size of the output increase has been baked into prices now, so it will all come down to the implementation details when the official communique is released later.

"It'll take the (U.S. oil) industry a few months to find new outlets", said Scott Shelton, a broker at ICAP in Durham, adding that US crude flows to Europe and the Mediterranean will likely pick up.

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