OPEC ministers agreed to a deal on Friday to boost oil
output by about 600,000 barrels a day, moving more modestly than expected to
curb higher oil prices.
Ministers ended a contentious meeting of the Organization
of the Petroleum Exporting Countries with a relatively loose promise to relax a
previous deal between it and non-OPEC allies to rein in production. That deal,
orchestrated by Saudi Arabia and Russia, worked—in some ways, too well.
The group agreed two years ago to reduce output by 2% of
global output at the time, or about 1.8 million barrels a day. Many members cut
deeper than their individual quota. That ate away at a glut of oil that had
depressed prices.
This year, amid growing global economic growth and
unexpected supply outages, oil prices have been on a tear, drawing complaints
from big consuming countries, like the U.S.
OPEC said Friday that to cool markets, members had
tentatively agreed with their non-OPEC partners to end their over compliance,
in order to add barrels to the market.
On paper, such a move would add about one million barrels a
day to global markets, officials said. But the boost is to be shared out among
all members, some
of whom can’t raise output at all right now. That translates into just
about 600,000 barrels of new oil a day, according to people familiar with the
deal’s technical aspects.
The deal represents just about a half percent of global
demand. Brent crude, the international benchmark, rallied about 3% in early
afternoon trading in London, before falling back a bit, to around $74 a barrel.
“We don’t think that we are suddenly going to be swamped in
oil,” said Trip Rodgers, a portfolio manager at Boone Pickens Capital Fund
Advisors.
Back in 2016, skeptics doubted whether oil producers could
achieve their goal of throttling output because such deals are hard to monitor
and enforce. For governments, holding back barrels means foregoing revenue.
Eventually, though, the pact succeeded in whittling down
the excess inventories of stored oil that developed nations had stockpiled. In
May, international crude briefly hit $80 a barrel, a 3 ½ year high. President
Donald Trump has complained—tweeting about prices being too high and blaming
OPEC.
On Friday, he reengaged, tweeting shortly after the OPEC
meeting finished that he hoped the cartel “will increase output substantially.
Need to keep prices down!”
U.S. officials also asked Saudi Arabia, OPEC’s de facto
leader, to open up the taps to cushion the blow from Washington’s fresh
sanctions on Iran earlier this year, according to people familiar with the
matter.
OPEC members themselves have long been sensitive to how
high prices can soften demand by encouraging conservation and other energy
sources like renewables, spiraling into a fresh glut and lower prices. Russia,
meanwhile, a key partner in OPEC’s pact, has pushed to raise production. A
contingent of private oil companies make up a good chunk of the country’s
output, and they have lobbied Moscow to let them pump more.
On the other side of the fence, Saudi Arabia has been a
proponent of keeping output in check. It and some of its Persian Gulf allies
inside OPEC initially pushed for a very small boost—well under 500,000 barrels
a day. OPEC member Iran, meanwhile, opposed
any cut.
Iran has accused its regional rival Saudi Arabia of doing
the U.S.’s bidding. Iran also worried that if others boost output, they might
steal its market share since the country is under
economic sanctions. Several times during the week, Iranian Oil Minister
Bijan Zanganeh threatened to pull out of any OPEC deal to hike output. Early
Friday, before the OPEC meeting, he and Saudi Energy Minister Khalid al-Falih
held a round of bilateral talks to help smooth over differences.
Iran ultimately agreed, winning a promise that OPEC
wouldn’t provide any concrete numbers to its deal, according to people familiar
with the matter. Instead, the group simply agreed to halt it over compliance.
Spare capacity in May, million barrels a daySource:
International Energy Agency
“It’s a fudge, to satisfy all parties,” said one OPEC
official.
Suahail Al-Mazrouei, the oil minister of the United Arab
Emirates who currently holds the rotating OPEC presidency, told reporters after
the meeting that the difference between current over compliance levels among the
group and 100% compliance worked out to about one million barrels a day. But he
said the amount of real barrels that will hit markets will be less.
“The whole group has agreed to that number, keeping in mind
some of those countries are not going to contribute,” he said. An OPEC
spokesman said that in May the group’s members held back 1.5 times the amount
agreed to in the 2016 pact.
The deal still needs final, official approval from Russia
and its non-OPEC partners. OPEC and that group are set to meet on Saturday, but
Russia has been heavily involved behind the scenes in hammering out the
contours of Friday’s agreement with Saudi Arabia. One person familiar with the
matter said Saturday’s meeting was widely expected to certify the deal.
Heading into the OPEC meeting early Friday, Mr. Falih, the
Saudi minister, told reporters that any boost would be gradual. He said OPEC
and non-OPEC producers—who have cooperated closely on output over the last two
years—would meet again in the fall to evaluate supply and demand.
“I don’t think anyone should expect an immediate slug of
crude to the market,” he said.
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