Prices Dip Slightly on Reports Iran May Agree to Small Production Hike

Darnell Taylor
June 22, 2018

To be sure, Chinese tariffs on United States oil imports are not a certainty, and many analysts think that it's just the latest scare tactic in the trade spat. It could also raise targets for all, even though any increase would come from only a few members.

Benchmark U.S. crude hit its highest level in more than three years in May, but U.S. and global prices have eased since then in anticipation that OPEC will approve more drilling.

That reflects a 1 million barrel-a-day adjustment on paper to the production cuts implemented by the Organization of Petroleum Exporting Countries and its allies, the delegate said, asking not to be named because the information is private.

"We need to continue to tread carefully; none of us want to see the return of the kind of volatility that allows pessimism to return to the markets", Suhail Mohamed Al Mazrouei, the UAE energy minister and president of the Opec conference, said.

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.

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

"While China could secure the crude from alternative sources, such as West Africa which has a similar quality to United States crude, the USA would find it hard to find an alternative market that is as big as China", Suresh Sivanandam, senior manager, Asia refining, at Wood Mackenzie, said earlier this week, commenting on the impact of possible Chinese tariffs on U.S. oil imports.

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The market is contending with exactly how much output will change.

At issue is OPEC's 2016 agreement with nonmembers like Russian Federation to cut production by 1.8 million bpd.

Iran's oil minister walked out of a key meeting with OPEC peers on Thursday, as a rift deepened with regional rival Saudi over its push to ramp up the cartel's oil output. "We are in for higher prices for longer", he said. 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 intensive negotiations between ministers in Vienna this week are the culmination of a process that has whipsawed oil markets for weeks.

Falih also said the real increase for OPEC and non-OPEC would be smaller than the nominal gain of 1 million bpd.

So far there is no indication that Iran and the other members would agree to such a reallocation, although with officials holding extensive talks in the run-up to Friday's Opec meeting, further compromise could be made.

OPEC takes its decisions by unanimity, so if Iran were to wield its veto Saudi Arabia would be left only with the option of assembling a coalition of willing countries to bypass Tehran's opposition.

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