OPEC Agrees to Boost Oil Output

OPEC said it will produce more oil, but not as much as investors feared.

More importantly, the one million bpd figure did not make its way into the official OPEC statement, nor did any mention of by when or which OPEC member producers would be increasing output, in deference to objections.

Storage has fallen as Gulf Coast refiners have soaked up crude that was available at a discount, said Bob Yawger, director of Energy at Mizuho.

The expectations of higher prices are encouraging news for USA shale drillers, who are envisioning a greater number of oil rigs to be commissioned in the second half of the year.

Major producers outside OPEC – including Russia, Mexico and Kazakhstan – met with ministers from the cartel in the Austrian capital to endorse a plan to add about 700,000 barrels per day of crude to the market starting next month.

The newly proposed increase to production levels may simply help mitigate those recently displaced supplies. For example, if OPEC were to plug its production shortfall (+0.7 mb/d) and Russian Federation add 0.2 mb/d for the whole of 2H18, we would only expect a slim market surplus of 0.1 mb/d yet this would require an unprecedented increase in core-OPEC and Russian Federation production and would leave the market with little remaining spare capacity.

How intent is the Organization of Petroleum Exporting Countries to stick to output curbs put in place 18 months ago? So they will want to support Trump’s call for higher production and lower prices.

Trump weighed in again after Friday’s OPEC decision was announced, tweeting: “Hope OPEC will increase output substantially”.

Iraq had done well under the OPEC+ agreement and was able to increase its relative standing in OPEC, even replacing Saudi Arabia as the biggest supplier to India.

The output gain is nominal.

There are other considerations than dollars and rubles.

Much of the current production shortfall has come from Venezuela, where an economic crisis has savaged petroleum production. It would be troubling if that jump in prices became a trend, the minister said, adding that producers with spare capacity, such as Saudi Arabia, can fill any gap left by falling production elsewhere. The US withdrawal from the deal could mean taking off about 1m bpd of Iranian crude, from the markets.

Kristian Rouz – International oil prices, along with United States energy stocks, posted gains in the aftermath of the most recent OPEC decision to increase oil production by less than previously expected.

Saudi Arabia promised to act decisively to keep oil prices under control, signaling a real supply boost approaching 1 million barrels a day is on the way to global markets.

“We are not going to allow a shortage to materialize to the point where markets will be squeezed and consumers will be hurt”, he said.

As Trump’s sanctions begin to bite in the coming months, Iran’s production will also fall – and probably much more so than Venezuela’s.

Importantly, the 100 per cent compliance target is for the group as a whole, not for individual members. So, let us see how things shape up.

“The lack of specificity is bullish for prices”, said Joe McMonigle, senior energy analyst at Hedgeye Risk Management. This surge has been brought about by the increased use of unconventional production methods such as fracking in the US.

OPEC and allies’ commitment to the agreement led to an increase in the prices over the past two years.