Saudi Sides with Oil Consumers as OPEC Nears Pivotal Talks

Virginia Carson
June 22, 2018

He was echoing comments from his Iranian counterpart, Bijan Namdar Zanganeh, who had rejected any production increase when he arrived in Vienna on Tuesday, saying OPEC shouldn't be doing Trump's bidding.

Saudi Energy Minister Khalid Al Falih, asked whether he expected an easy meeting on Friday, said: "We will find out".

Emirati Energy Minister Suhail al-Mazrouei said the decision was to fully comply with OPEC's self-imposed production limit, and the difference between that and current levels is "a little bit less than 1 million barrels".

Riyadh has said it is ready "to mitigate the effects of any supply shortages" from United States sanctions on Iran's oil.

"While we are not in favour of prices as low as $30 per barrel, we also do not support the prevailing high price which dent our fiscal balance and undermine our development process", Mr. Pradhan added.

High volume oil consumers like India seem to be heading for some relief, with crude oil prices falling sharply on Thursday as major oil exporters indicated that a consensus on increasing crude oil production was near.

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If OPEC members and Russian Federation agree to pump more oil, that will reduce global capacity for spare production - reserves of crude that can be brought online quickly.

The real increase will be smaller because several countries that recently underproduced oil will struggle to return to full quotas while other producers will not be allowed to fill the gap, OPEC sources have said.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $66.49 a barrel, up 95 cents, or 1.5 percent.

That may seem insignificant in a global supply of 98 million barrels a day, but critically it would reverse reductions that the same countries approved in late 2016, helping push crude higher by more than 50 percent.

Tensions between Iran and Saudi Arabia broke out days before OPEC's meeting on Friday in Vienna, with Tehran indicating it would probably not abide to the cartel's plans to cut production.

More important to Saudi Arabia than extra petrodollars is containing Iran, its arch-nemesis. It was up 1.2 per cent at $73.95 a barrel at 1:13 pm in Singapore on Friday.

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The correction in prices have been a continuing trend since May 23, when prices breached the $80 mark after the announcement of new USA sanctions on Iran and ongoing supply disruptions in Libya and Venezuela. Zanganeh has said the president is to blame for high prices because of his unilateral withdrawal from the worldwide nuclear agreement. US investment bank Jefferies said an increase in "the range of 450-750,000 bpd seems the most likely outcome" of the meeting.

Oil prices fell 2% after the Saudi minister spoke, before recovering slightly.

For Opec, over-compliance with its supply-cutting deal is a nice problem to have.

The deal looked to be in line with many analysts' forecasts.

That would effectively mean a modest boost from producers such as Saudi Arabia that has been cutting more deeply than planned despite production outages in Venezuela and Libya.

While trade wars may hurt global economy, therefore hurting global oil demand in the long run, in the short term, the victor will be OPEC.

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