The OPEC Agreement Puts A Floor Under Oil Prices

24 June, 2018, 14:59 | Author: Regina Lloyd
  • OPEC strikes deal to boost oil production | TheHill

"Hope OPEC will increase output substantially".

After a meeting in Vienna, Emirati Energy Minister Suhail al-Mazrouei said the cartel made a decision to fully comply with its existing production ceiling.

Against the backdrop of over-fulfillment of the agreement, the ministers of the OPEC + countries started talking about the need to soften quotas and gradually restore production from the second half of 2018.

As a result, oil supplies fell deeper than expected, and oil prices rose more than expected.

Saudi Arabia said the move would translate into a nominal output rise of around 1 million barrels per day (bpd), or 1 percent of global supply, for OPEC and non-OPEC producers.

On Friday, the 14 member nations of OPEC agreed to raise crude oil production by up to 1 million barrels per day (bpd) from next month. This rare request from Washington came after USA retail gasoline prices surged to their highest point in three years and President Donald Trump publicly complained about Opec policy and rising oil prices.

Although higher prices are better for the oil industry, Wright says there must be a balance to prevent a dramatic spike in oil prices. A meeting with the primary goal to discuss OPEC's "Exit Strategy" after two steady years of crude oil price increases from the depths of $27 (from January 2016) to an average of over $70 through 2018 thus far.




The Organization of the Petroleum Exporting Countries agreed in principle on Friday to raise output enough to match a production target it introduced at the beginning of 2017, but which it has undershot ever since. The expectation that the increase will fall short of the 1 million bpd figure boosted the market.

Top OPEC producer, Saudi Arabia faced the challenge of convincing a handful of reluctant producers including Iran, Iraq and Venezuela to support an output hike. Nevertheless, we know only too well that as long as the ayatollahs are running an ideological political system in Tehran, there will be no similar progress in matters of regional compliance. "More oil on the market means relatively lower prices for consumers".

OPEC and its allies have since previous year been participating in a pact to cut output by 1.8 million bpd. Compliance has been well above 100% this year since some countries, notably Venezuela, have seen a drop in production. "As individual countries, it is challenging", said United Arab Emirates Energy Minister Suhail bin Mohammed al-Mazroui.

Ultimately, Saudi Arabia persuaded Iran to cooperate with the plan to cut output, following calls from major consumers to curb rising fuel costs.

Much of the current production shortfall has come from Venezuela, where an economic crisis has savaged petroleum production.

"That is the big news of the day, both the OPEC news and just the reaction of the stocks as well", said Tim Ghriskey, Chief Investment Strategist at Inverness Counsel in New York, New York. "OPEC is set to hold the next biannual meeting on 3 December", wrote analysts at Danske Bank.

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