Iran Walks Out As Russia, Saudis Gain Support For Oil Output Increase

Crude Oil

Crude Oil

He said the exact mechanics of how the proposal should be carried out will be decided among OPEC members at their meeting on June 22. In reaction to the announcement, Brent crude futures are trading higher by over $2, given that the increase can easily be absorbed by the market and will unlikely tip the oil balance into negative territory.

The Bloomberg headline earlier says that OPEC members have come to an agreement on principle for an output increase of 1 million bpd on paper.

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 U.S. sanctions.

Iran had balked at the request because it faces sanctions after President Donald Trump ripped up an worldwide nuclear agreement.

As tensions mounted, the Iranian and Saudi ministers huddled for bilateral talks on Friday morning, holding up the start of the closely watched OPEC meeting.

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The Organization of the Petroleum Exporting Countries, meeting in Vienna, agreed on Friday to boost output from July after Saudi Arabia persuaded Iran to cooperate in efforts to reduce the crude price and avoid a supply shortage. "This view leads to a small-implied stock draw in Q3 2018, followed by an inventory build in Q4 2018 which is expected to weaken prices heading into 2019 when we see an oversupply for the year", Hittle said.

MINISTER of Energy, Industry and Mineral Resources Khalid Al-Falih said in Vienna on Thursday increasing oil supply by 1 million barrels per day would be a good target as the Organization of the Oil Exporting Countries and allies such as Russian Federation meet in Vienna this week.

Opec and its allies have since past year been participating in a pact to cut output by 1.8 million bpd.

Saudi Oil Minister Khalid al-Falih said 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". While fuel rates have been falling over the last few days, current oil prices are still a far cry from the $45 per barrel a year ago.

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

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Falih has warned the world could face a supply deficit of up to 1.8 million bpd in the second half of 2018 and that OPEC's responsibility was to address consumers' worries. He said the meeting would tackle over-compliance with oil output cuts and that Iran was "very cooperative". "OPEC is not part of the Department of Energy of the United States".

Saudi Arabia and some other Persian Gulf producers have supported the United States in imposing sanctions on Iran.

He acknowledged that a big production hike might be "politically unacceptable" to some OPEC countries and said it was important to be "sensitive" to those concerns.

"This puts Saudi Arabia in a tough position, as unanimity is needed for any accord to be reached", it added.

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