OPEC Crude Output Hikes Could Reach $1.5 million BPD: Russia

Thursday June 14, 2018

Not only did the prospect of the Organization of the Petroleum Exporting Countries (OPEC) agreeing to turn back on the taps resurface with a bang on Thursday, for the first time an amount it might produce in order to compensate for production losses in Venezuela and Iran was cited: up to $1.5 million barrels per day (bpd), according to Alexander Novak, energy minister for Russia.

He said, "We believe we need to balance the market and not allow for surplus, that is market going the other way; it has to be balanced.

"As of today, the parameters of up to 1.5 million b/d could be considered."

Novak made the remark in Moscow as he and Khalid al-Falih, energy minister for Saudi Arabia, attended the Russia-Saudi Arabia World Cup opener; they had met earlier in the day to discuss loosening quotas under OPEC's production cut deal, and as a result Novak declared, "We support the trend in principle, but will discuss specific parameters with minister literally in a week."

For his part, al-Falih told reporters that he expected a "reasonable and moderate" agreement next week when the oil-producing nations meet: "We will see where we go, but I think we'll come to an agreement that satisfies, most importantly, the market."

As far as the experts are concerned, this amount is not hard to achieve: Keisuke Sadamori, director for energy markets and security for the International Energy Agency, said at an event in Tokyo, "A quick output boost could be expected, mainly from OPEC member countries in the Middle East.

"These countries, which have intentionally cut production, have a capacity to boost around 1.2 million bpd in a relatively short time," and he added that Russia could boost output by around 300,000 bpd.

When asked if OPEC needs to alleviate its output cutbacks, Sadamori replied, "Under the current market conditions, a certain action is objectively needed to be taken to stabilize the [oil] market."

Fereidun Fesharaki, chairman of FGE, told CNBC an output increase will indeed occur because "the market is very tight," but he added that the key is how much to put back: he explained that if 1 million bpd is returned to the market "the prices can drop $5 or more", and if only 100,000-200,000 bpd "then the market might just ignore it and go forward."

Of course, a drop in oil prices as a result of OPEC boosting output is precisely what U.S. president Donald Trump - who administration is said to have been persuading the Saudis to turn back on the taps - is hoping for, but Sadamori noted that a price decline will have a negative impact on emerging Asian economies such as that of India and Indonesia.

Unsurprisingly, interest is reaching a fever pitch as OPEC prepares to convene in Vienna on June 22, and Helima Croft, the global head of commodity strategy at RBC Capital Markets, said that whatever happens will be the result of Saudi Arabia's role as the cartel's de facto leader.

She wrote in a note titled `OPEC Watch List: Waiting for Superman', "With unplanned outages escalating, geopolitical risks rising, and U.S. shale production facing infrastructure bottlenecks, Saudi Arabia is once again back in the driver's seat exerting significant influence over the oil market in 2018.

"All eyes are on what course of action it will call for at the June 22 OPEC meeting in Vienna."

But she warned that although the Saudis are more than capable of boosting production, its own Vision 2030 policy initiatives - which are designed to evolve the kingdom's economy slowly away from oil - "could be imperiled by a precipitous plunge in prices."

Not everyone is convinced OPEC has the ability to boost production in the short term: earlier this week Pierre Andurand, founder of Andurand Capital Management, mused that "OPEC has the lowest spare capacity ever right now - there is going to be a real issue," and he predicted prices above $150 within two years.