Saudi Arabia: Deal can be done this week to boost oil supply

Devin Lawrence
June 22, 2018

The brewing tensions between the world's two largest economies comes ahead of Friday's highly anticipated meeting of oil ministers from around the globe at the Organization of the Petroleum Exporting Countries in Vienna.

"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". The proposal has yet to win the backing of all OPEC members, and may meet resistance from more hawkish countries in the group including Venezuela and Algeria as well as Iran.

Iranian Minister of Petroleum Bijan Zangeneh and Saudi counterpart Khalid al-Falih have held talks in Vienna just before the OPEC group met to decide on policy, the Shana news service reported. Iran does at least "understand the necessity to reduce cuts" and has agreed to discuss the matter, Oman's Oil Minister Mohammed Al Rumhy said earlier in the day.

The final production hike is expected to be less than the one million barrels as many producers may struggle to increase production. The measure has helped rebalance the market in the past 18 months and lifted oil to around $74 per barrel from as low as $27 in 2016.

The U.S. has reimposed sanctions, but it doesn't want its consumers to pay the price for that at the pump.

Oil prices soared on Friday after oil producers agreed to modest crude output increases to compensate for losses in production at a time of rising global demand.

Brent crude last month surged to a more than three-year high above $80 a barrel.

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Reuters reported that the reinstitution of us sanctions in November could cut Iran's oil output of almost 4 million barrels a day by a third.

The Organisation of the Petroleum Exporting Countries meets on Friday to decide output policy amid calls from major consumers such as the United States and China to cool down oil prices.

Reports said the Saudi proposal, backed by Russian Federation, would allow several hundred thousand more barrels of oil to come to the market without amending the milestone pact - paving the way for a face-saving compromise with Iran. If we lose a million bpd of output from Venezuela and Iran in the fourth quarter, where will all these barrels come from? He said Trump had contributed to the rise in prices by imposing sanctions on Opec members Iran and Venezuela, which will likely lead to lower exports.

"We are going to change this structure (of one million bpd)", he said as the meeting kicked off.

Domestic crude oil production falls by 2.95%. "Nigeria under this scenario must build capacity to participate easily when OPEC expands its production", he said.

OPEC's deal to release more supply centres on the idea of returning to 100 per cent compliance with existing, agreed cuts.

While Saudi Arabia's cutting by more than required has helped Opec's compliance, involuntary reductions in Venezuela amid economic crisis and in Angola due to natural decline have had a larger impact and can not be reversed at short notice.

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