Oil output increase sows OPEC discord

Saudi-Iranian hostility dominates rancorous summit in Vienna

Photo: Photo: AP. Iran's Minister of Petroleum Bijan Namdar Zangeneh speaks to journalists, Vienna, 19 June.

Oil prices headed lower last Thursday, after media reports said Iran might accept a modest increase in production at the OPEC summit later on Friday, summoned in Vienna with the participation of a group of non-OPEC countries led by Russia. The main issue was the future of their output target, which has been in place since January 2017. Ahead of the summit, Saudi Arabia and Russia, the world's largest oil producers, pushed for an increase in production, and Iran in particular was a vocal opponent of such plans.

Oil prices headed lower last Thursday, after media reports said Iran might accept a modest increase in production at the OPEC summit later on Friday, summoned in Vienna with the participation of a group of non-OPEC countries led by Russia. The main issue was the future of their output target, which has been in place since January 2017. Ahead of the summit, Saudi Arabia and Russia, the world's largest oil producers, pushed for an increase in production, and Iran in particular was a vocal opponent of such plans. Russia earlier put forth a proposal to boost production by 1.5m barrels a day, but analysts believed such a jump was unlikely, given the Iranian opposition. Instead, media reports said Saudi Arabia was trying to reach a compromise of one million barrels of extra production a day. Existing supply cuts of 1.8m bpd already helped to rebalance the energy market and prop up crude prices.

“Given the Saudi-Iranian hostility, Russia will have to show a great deal of diplomatic skill and the wisdom of Solomon to bring participants to an agreement that is acceptable for most,” Tamas Varga, analyst at PVM Oil Associates, said in a note ahead of the summit. Alongside Iran - Iraq, Venezuela and Algeria were all against Saudi Arabia and Russia's calls for rising production levels, fearing a slump in prices.

Calls to increase the agreed output ceiling have risen in recent months, as production from pact members has declined faster than expected, mainly due to a drastic fall in Venezuela's output. Fears that Iran's exports will shrink due to reinstated US sanctions have also sparked concerns of a supply shortage, helping oil prices rally 50% over the past year.

India, the world's third-biggest oil consumer and importer, urged OPEC nations to fill a supply gap and ensure sustainable oil prices as politics affect the output of some producers. India's Petroleum Minister Dharmendra Pradhan said at a seminar in Vienna that currently high oil prices dent the economic development of many countries.

US President Donald Trump also weighed in on OPEC's discussions, saying in a Tweet last week that the cartel was “at it again”. US oil producers, however, have responded to the OPEC pullback by increasing their own output to record levels of more than 10.4m barrels a day, according to Energy Information Administration data.

Brent crude oil fell to near $73 a barrel on Thursday, a day before the Vienna summit.

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