Markets

OPEC edges closer to raising oil output

OPEC edges closer to raising oil output”

OPEC scrambled on Thursday to agree on raising oil output, with Saudi Arabia warning of shortages but Iran holding out against a deal amid the prospect of lower exports due to US sanctions on Tehran.

OPEC and Russian Federation agreed past year to cut production by 1.8 million barrels a day to lift oil prices, which had fallen to a low of $27 in 2016.

Oil markets are bracing for a reshuffle of global trade flows as China threatens to impose tit-for-tat tariffs on imports of US energy products, including crude.

Saudi Energy Minister Khalid al-Falih also said on Wednesday that the market demanded more oil in the second half of this year and that OPEC was moving toward "a good decision".

The country's oil minister has struck a confrontational tone, opposing OPEC making decisions based on pressure from U.S. President Donald Trump, who recently re-imposed sanctions on Iran.

But prices may stall even without agreement-Saudi Arabia has already begun producing more oil than provisioned for under its production cap.

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OPEC operates on the principle of consensus, and Iran has already signalled it could veto attempts by other cartel members to offset its expected production losses as a result of the upcoming United States sanctions.

Saudi Arabia is struggling to reach a unified position with fellow Gulf crude producers on the need to raise oil output, sources familiar with the talks said on Wednesday, adding to complications ahead of an OPEC meeting this week.

The Opec members are Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola and Equatorial Guinea.

OPEC sources also said Iran had demanded that USA sanctions be mentioned in the group's post-meeting communique, as Tehran has blamed US measures for the recent rise in oil prices.

Oil prices recovered some day-earlier losses in Asia on Wednesday, supported by a drop in USA commercial crude inventories and the loss of storage capacity in oil producer Libya.

"You can not impose unilateral trade sanctions against two founding members of OPEC, two major oil producers. and at the same time expect the global oil market not to show tensions", he said.

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- Iran has signalled that it would oppose any Saudi move to fill other producers' supply gaps. I reckon the size of the output increase has been baked into prices now, so it will all come down to the implementation details when the official communique is released later.

Ecuador also expects a deal allowing more oil to flow onto the market, but something smaller than the 1.5 MMbpd Russia has proposed.

"The effective increase in output can easily be absorbed by the market", Harry Tchilinguirian, head of oil strategy at French bank BNP Paribas told Reuters Global Oil Forum.

But analysts said trade concerns and disagreements within the Organization of the Petroleum Exporting Countries (OPEC) over boosting supply continue to loom over the market.

Ministers have gathered in the Austrian capital to discuss a supply increase that would be equivalent to about 600,000 barrels a day, or 0.5 per cent of global supply.

A 25% tariff on USA crude oil imports, as threatened by China in retaliation for duties Washington has announced but not yet implemented against Chinese products, would make American crude uncompetitive in China versus other supplies.

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Although traders have been pricing in a production hike for about a month, there is still some uncertainty over the size of the hike and the timing of the increases.



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