Oil falls as production hike turns likely
- Author: Eleanor Harrison Jun 24, 2018,
Jun 24, 2018, 1:56
After sitting down with several counterparts, Iranian Minister Bijan Namdar Zanganeh said he was optimistic about the outcome of the OPEC meeting, a marked contrast to comments on Tuesday when he said a deal was unlikely.
The price of oil jumped after the announcement, with the worldwide benchmark, Brent, gaining 2.5 percent to $74.84 a barrel in London, and USA crude climbing 4.9 percent to $68.72 a barrel in afternoon trading in NY - on track for its biggest one-day rise since OPEC agreed in November 2016 to cut production.
The Saudi oil minister said in an interview with CNNMoney on Thursday that there could be "a deficit in the second half of this year of 1.6 to 1.8 million barrels". Patrick DeHaan, an analyst for GasBuddy, a gasoline price tracking service, said a middling OPEC increase - more than 600,000 barrels per day - would make it less likely that Americans will pay an average of $3.
Brent oil prices rose 1% to 74.03 in London trading on Friday.
Saudi Arabia is pushing for a hike in oil output, putting the fate of an 18-month-old supply-cut deal between OPEC members and allied countries credited with clearing a global oil glut and lifting crude prices in jeopardy.
That would effectively mean a modest boost from producers such as Saudi Arabia that have voluntarily cut more deeply than planned.
Suhail Mohammed Faraj Al Mazrouei, the current head of OPEC and energy minister of the United Arab Emirates, said the group would increase its output to the maximum allowed under the terms of a production agreement struck in 2016.
Underscoring how hard the discussion about a production increase will be, Zanganeh said that Trump's comments have cast doubt on the prospect of a deal. Saudi Arabia and Russian Federation - with support of major consumers India, China and the USA - are calling for a loosening of production restrictions to boost global supply and lower prices. Iran's output is also anticipated drop when Trump's sanctions come into effect later this year. The US West Texas Intermediate (WTI) crude priced US$66.49 per barrel, up 1.5 per cent from the last close, said the source.
But Opec could still agree a last-minute deal on Friday by compromising on a lower output increase below 1 million bpd, Opec sources have said.
OPEC and its allies are discussing an output increase of 1 million bpd or more to avert future shortages and stock declines. Iran is usually not part of the committee, which includes Russia, Saudi Arabia, the UAE, Oman, Kuwait, Algeria and Venezuela.
Al-Falih also said leaders from other countries including India, China and South Korea had also expressed concerns to him that their economies were "starting to feel the pinch of higher oil prices".
"There was a lot of anticipation in the market that there was going to be a lot of new oil coming to market, and that isn't going to happen, at least for now", said John Kilduff, a partner at Again Capital.