Oil rises as OPEC strikes agreement on production
WTI crude moved higher as OPEC ministers agreed a deal to boost production, while easing investor concerns about flooding the market.
Futures gained as much as 3.7 per cent, while the global Brent benchmark added more than 3 per cent. Saudi Arabia’s Oil Minister Khalid Al-Falih said OPEC reached an agreement to make a 1 million barrel-a-day adjustment on paper to the production cuts implemented by the group. The increase in supply to the market would be gradual, he added, and is set to be smaller in reality.
The oil market would see a real addition of 700,000 to 800,000 barrels a day, according to Iraq’s oil minister, while his Iranian counterpart said the figure would be less than 700,000.
“It’s a relatively modest increase, but I think it’s also important that it’s a change from the previous strategy,” Petromatrix GmbH Managing Director Olivier Jakob said by phone. “The initial increase is not necessarily the last increase, it does open the door to a continued increase.”
It emerged late Thursday that a committee consisting of members of the Organization of Petroleum Exporting Countries and allied producers had backed raising oil production by a nominal 1 million barrels a day. Earlier in the week, there were Russian proposals to boost supply by 1.5 million.
The group will strive to return to 100 percent compliance with production quotas, according to the communique published by the group after the meeting. OPEC as a whole has overcomplied with the original output accord, in place since the start of 2017, in part because an economic crisis in Venezuela has led to a collapse in production there.
Brent crude for August settlement rose as much as US$2.29, or 3.1 percent, to US$75.34 a barrel on the London-based ICE Futures Europe exchange and traded at US$74.74 at 9:49 a.m. New York time. Prices slid 2.3 per cent on Thursday.
WTI crude for August delivery rose as much as 3.7 per cent to US$67.93 a barrel on the New York Mercantile Exchange. The U.S. benchmark oil traded at a discount of US$7.30 to Brent.
Before the ministers’ meeting today in Vienna, comments from Saudi Arabia, Iran, Iraq and others suggested that they were inching toward a compromise. Iranian Oil Minister Bijan Namdar Zanganeh said language for a deal was being drafted.
Iran, which faces imminent U.S. sanctions that threaten to curb the nation’s exports, earlier in the week opposed the idea of even a modest increase in production. Saudi Arabia has sought to boost production, with Energy Minister Khalid Al-Falih on Thursday saying his nation was siding with consumers.
“The risk to the price of oil from failure probably helped bring the deal home,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “We should still remember that the production deal is still alive and kicking. They’re basically preempting a shortfall to keep the price stable.”