Published: Sun, June 24, 2018
Markets | By Erika Turner

Position-Squaring Ahead of OPEC Meeting Boosting Prices

Position-Squaring Ahead of OPEC Meeting Boosting Prices

Saudi Energy Minister Khalid Al-Falih said Thursday that OPEC members and other countries who agreed in November 2016 to cut output should increase supply by about one million barrels per day to prevent a shortage.

"OPEC is an independent organization, not an organization to receive instruction from President Trump", Zanganeh said on Tuesday.

Iran had been expected to oppose any rise in crude output, but it has now signalled it may support a small increase.

"I don't believe at this meeting we can reach agreement", Iran's Oil Minister Bijan Namdar Zanganeh said.

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher shortly before the regular session opening on Friday.

Still, some analysts believe that a combination of the OPEC deal, US oil, and an easing of American demand for energy should eventually contribute to lower oil prices, which in May hit their highest levels in more than three years. The measure has helped rebalance the market in the past 18 months and lifted oil to around $75 per barrel from as low as $27 in 2016. Opinions vary on what the sweet spot for oil prices is but analysts suggest somewhere in the region of $60 to $70 per barrel for brent crude oil.

"We expect from Opec and its members a commitment to step in (and) more than fill the gap to ensure sustainable prices", Indian oil minister Dharmendra Pradhan said at a seminar in Vienna.

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.

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"Essner is betting that the Vienna meeting will yield an agreement to boost production by 500,000 to 800,000 barrels a day, far below the 1.5 million barrel figure floated recently by Russia's oil minister, Alexander Novak".

Stocks of crude oil and refined products are now below their five-year averages and expected to continue falling in the second half of 2018 and through 2019. In the past year, many promised to prioritize spending discipline over production expansion after previously rushing to pump more oil when prices recovered.

But a decision to increase output could be taken with Iran refusing to sign up, as has happened before in OPEC.

At issue is OPEC's 2016 agreement with nonmembers like Russian Federation to cut production by 1.8 million bpd. Iran is usually not part of the committee, which includes Russia, Saudi Arabia, the UAE, Oman, Kuwait, Algeria and Venezuela.

Falih said the world could face a supply deficit of up to 1.8 million bpd in the second half of 2018 and that OPEC's responsibility was to address consumers' worries.

In 2006-2008 and again in 2011-2014, surging oil prices resulted in a sharp slowdown in consumption growth in the advanced economies, though at the time many analysts dismissed signs of a slowdown.

"The market is going to say, 'That isn't enough, ' and 'How quickly is it going to come online?' That's when we're really going to resume the price increases", Flynn said.

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