Published: Fri, June 22, 2018
Money | By Hannah Jacobs

Oil falls as OPEC nears deal to raise production

Oil falls as OPEC nears deal to raise production

Due to the staunch opposition to any production increase from the faction led by Iran and Venezuela, analysts expect this week's OPEC meeting to be a very hard one, comparing it to the 2011 meeting, which the then Saudi Oil Minister Ali al-Naimi described as "the worst OPEC meeting of all time", Commerzbank commodities analyst Carsten Fritsch told Reuters.

The news of the United States asking OPEC to increase oil output by 1mb/d (million barrel per day) in the second half of 2018 and rising U.S. oil production has put downward pressure on prices.

Both countries would struggle to increase output significantly, as Iran is facing renewed USA sanctions that will impact its oil industry and Iraq still has production constraints. "We look forward to having this gathering with OPEC and non-OPEC".

OPEC's second- and third-largest producers, Iraq and Iran, have said they would oppose output increases on the grounds that such moves would breach previous agreements to maintain cuts until the year-end. However, most OPEC members are not able to increase production at this stage due to lack of investment and sanctions.

OPEC, together with other key producers including Russian Federation, started withholding output in 2017 to prop up prices, but a tightening market has led to calls by consumers for more supplies.

Commerzbank commodities analyst Carsten Fritsch said that given big differences in the positions of OPEC members, the Friday meeting was likely to be tough. The risk is that Saudi Arabia will choose to go it alone, boosting output.

As recently as April, Saudi Energy Minister Khaled al-Faleh had voiced support for the oil cut deal, saying the market had the capacity to absorb higher prices.

The oil ministers of the OPEC cartel were gathering Tuesday to discuss this week whether to increase production of crude and help limit a rise in global energy prices. Saudi Arabia has been discussing different scenarios that would raise production by between 500,000 and 1 million barrels a day, according to people familiar with the matter.

In the wake of Friday's latest barrage of United States sanctions on China, the biggest customer for U.S. oil exports is threatening to impose its own tariffs on USA energy imports.

Meanwhile, Russia plans to propose the OPEC/non-OPEC allies next week that they reverse the group's production to the October 2016 levels - the baseline for the cuts of most pact participants when they had pumped as much oil as they could to blunt the cuts' impact later is putting pressure on crude oil prices.

Non-OPEC members including Russia, Oman and Mexico also agreed to cut 558,000 bpd off their production to stabilise the market. We do not want crude at $25 per barrel.

Tankers waiting to load more than 24 million barrels of crude, nearly as much as state producer PDVSA shipped in April, are sitting off the Opec member's main oil port.

Roberts said Opec could boost production by about a million barrels day fairly rapidly, but several Opec countries have problems. After yearlong rise in oil and gasoline price, there's a call to control Oil price from rising too far and too fast.

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