New divides over oil prices as Opec heads for crunch meeting

Daniel Fowler
June 21, 2018

A decline in USA stocks is a welcome sign ahead of the upcoming OPEC meeting this week in Vienna, where Saudi Arabia's plans to increase production limits in cahoots with Russian Federation are expected to run into tense opposition from other OPEC members including Iran, Iraq, and Venezuela.

Along with non-member Russia, Saudi Arabia is pushing hard to ease a production cap that has more than doubled oil prices to around $70 per barrel since 2016.

Speaking at the same event in Vienna, Iranian Oil Minister Bijan Namdar Zanganeh reiterated his country's resistance to hiking oil output and accused Trump of trying to politicise OPEC.

Saudi Arabia's Energy Minister Khalid Al-Falih was confident that there would be an agreement at OPEC on Friday, saying today that "Of course we will have an agreement".

Oil prices surged almost 75 percent, touching $80 a barrel, after OPEC and allies agreed to cut production in late 2016.

"It would seem that an aggregate increase in production for Opec+ of between 500,000 barrels per day (bpd) and 1 million bpd is the range that is being considered", Harry Tchilinguirian, head of oil strategy at French bank BNP Paribas, told Reuters Global Oil Forum.

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OPEC edged closer on Thursday toward raising oil output, with Iran softening its opposition to an increase and Saudi Arabia warning of supply shortages and price rallies if production remained stable.

India, which is the world's third-biggest oil consumer and importer, on Wednesday urged OPEC nations to fill a supply gap and ensure sustainable oil prices as geopolitics affect the output of some producers. Opec's supply-cutting pact runs until the end of 2018. 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.

Iran, with some support from Venezuela, has so far rejected any increase, including one compromise mooted in private by some OPEC officials for a 300,000-to-600,000 barrel-a-day hike in the second half of the year.

It remains to be seen whether they get Iran and others onboard for a formal Opec agreement, or go ahead with increases regardless. Zanganeh was due to attend a ministerial committee on Thursday, two sources said.

OPEC sources said the final compromise also depended on whether OPEC agreed to mention US sanctions in the group's communique, an important point for Iran, which has blamed USA measures against Tehran for the recent rise in oil prices. Iraqi Oil Minister Jabar Al Luaibi said on Wednesday he hoped there would be agreement when Opec meets but added: "The oil market has not reached the level of stabilisation".

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