EMEA News
Politics Take Centre Stage as Saudi, Iran Spar Over Deal to Hike Oil Output
After a weeks-long build up in which both analysts and insiders alike believed a conflict was inevitable when the Organization of the Petroleum Exporting Countries (OPEC) convened in Vienna on Friday, it now seems a distinct possibility that the cartel may be able to lift its crude output restrictions with no squabbling among members.
As a result, crude prices on Thursday dropped, with West Texas Intermediate down 17 cents at $65.54, and Brent falling $1.69 - a sizeable 2.3 percent - to $73.05 per barrel.
WTI's losses were minimal supposedly due to rumours that crude inventories at the key Cushing, Oklahoma hub were expected to have dropped by 2.3 million barrels in the week since Tuesday, but Brent's far more substantial loss was said to be due to the widespread expectation OPEC members, led by Saudi Arabia, will agree to pump more, possibly supported by non-members such as Russia.
Harry Tchilinguirian, head of oil strategy at BNP Paribas, believes OPEC and Russia will agree on a compromise that will see a small increase in global oil production: "It would seem that an aggregate increase in production for OPEC of between 500,000 barrels per day (bpd) and 1 million bpd is the range that is being considered."
To which Stephen Innes, head of trading for Asia-Pacific at OANDA, added: "There appears to be an air of confidence that this deal will move through."
Presumably one factor that has caused experts to think an output agreement is a fait accompli is news on Thursday that Iran, which like other members doesn't have any spare capacity and has loudly opposed any increase in production, may do an about face if OPEC officially condemns U.S. sanctions that target oil production, according to an anonymous source.
However, while this disclosure may sway sentiment-prone crude traders, it's unclear what effect if any such a condemnation would have - and as Joe McMonigle, an analyst with Hedgeye, pointed out, "I would think the Saudis would be strongly opposed to it; Iran's request to add a sanctions discussion to the agenda had already been rejected."
Indeed, Khalid al-Falih, energy minister for the Saudis, said on Thursday that OPEC would not be discussing sanctions in Vienna.
Plus, while OPEC's oil ministers have spent most of the week prepping for the Vienna summit, the Saudis have reportedly been maneuvering to clinch a deal that would see an increase in production of about 1 million bpd.
Falih told media that the world is likely to face a large deficit of oil in the second half of 2018, and that "We will release supply …one million sounds like a good target to work with."
Supposedly as a conciliatory gesture, the Saudis on late Thursday included Iran in a committee meeting of nations tasked with monitoring the alliance's output levels, even though the Islamic republic is not a part of that committee.
Still, while pundits think all this will amount to smoother than expected sailing when the summit gets underway in less than 24 hours, sources say Bijan Zanganeh, oil minister for Iran, was seen storming through the lobby of the Palais Hansen Kempinski, reiterating his familiar stance that OPEC would not reach an agreement.
If a deal to boost output by 1 million bpd is reached, that could result in a fairly substantial drop in crude prices: Barclays recently calculated that a 700,000 to 800,000 bpd escalation through the end of the year would put Brent at an average of $70 per barrel this year and $65 for 2019.
