U.S. Oil Prices Slip a Bit Before OPEC Meeting

Darnell Taylor
June 23, 2018

Ministers from the Organization of the Petroleum Exporting Countries are meeting Friday in Vienna for what could be a hard gathering.

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

Global benchmark Brent crude fell more than 2 percent ahead of a meeting of the Organization of the Petroleum Exporting Countries, where producers were expected to boost output to stabilize prices.

The Iranian oil minister noted that he does not expect the oil producer group to reach an agreement to change its output policy in the upcoming meeting.

The OPEC meeting began around 1000 GMT and was continuing after two and a half hours. "It wasn't a good meeting", Zanganeh told reporters after walking out little more than 30 minutes after the gathering got under way.

"It would seem that an aggregate increase in production for OPEC+ of between 500,000 bpd and 1 million bpd is the range that is being considered", Tchilinguirian said.

Oil prices surged almost 75 percent, touching $80 a barrel, after OPEC and allies agreed to cut production in late 2016.

Brent oil prices were up 1.8% on Friday.

In practice, the cut has approached 2.8 million bpd, delegates and ministers say, because of involuntary declines in countries including Venezuela and Angola, as well as voluntary reductions by Saudi Arabia. Iran has wanted to keep the initial deal intact, but the Saudis and Russian Federation want to push for an agreement to increase output to stabilize prices and prevent a supply shortfall from materializing in the second half of 2018.

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Saudi Arabia's energy minister said that after years of production cuts - when oil prices plummeted in 2014 - it's time to turn back on the tap.

For OPEC, over-compliance with its oil supply-cutting deal is a nice problem to have.

That would effectively mean a boost from other oil producing nations such as Saudi Arabia, that has voluntarily cut more deeply than planned.

Bailey, however, said he anticipates the level of production will likely hold, because oil giants like Saudi Arabia - the de facto leader of OPEC - don't want to see prices fall.

Global consumption has increased by an average of 1.7 million bpd for the last three years, accelerating from an average of 1.1 million bpd in the three previous years.

But the agreement failed to announce a clear target for the output increase, leaving traders guessing how much more OPEC will actually pump.

Falih also said the real increase would be smaller than the nominal gain of 1 million bpd, meaning a compromise with Iran remained possible.

Iran may agree to an increase in OPEC quotas if the organization officially condemns United States sanctions that target oil production, a source familiar with the country's position said Thursday.

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