Russia Ready to Boost Production as OPEC Seen Unable to Meet Rising Demand

It's unclear to what extent industry fears about a tightening market are justified. File Image / Pixabay

If sentiment was a reliable indicator of things to come, then a case could be made that plummeting purchases of Iranian oil are too much for the Organization of the Petroleum Exporting Countries (OPEC) to nullify simply by turning back on the taps.

A Reuters poll of 35 economists showed on Friday that extra oil from OPEC will fail to meet demand and cause prices to stay strong for the rest of this year and into 2019.

Frank Schallenberger, head of commodity research at LBBW, echoed the sentiments of his colleagues by saying, "I expect OPEC to increase production by some 600,000-800,000 barrels per day [bpd] till the end of the year; this won't be enough to compensate for rising demand and declining output in countries like Iran or Venezuela."

Of course, media reports detailing the concern of oil producing nations having to go along with the U.S.'s mandate that they stop buying Iranian oil by November 4 feeds into the notion the global crude market is about to dry up (after almost two years of persistent arguments - and calculations - from the very same body of experts that the planet is choking in excess oil).

Reuters on Friday quoted one industry source as saying, "These sanctions are going to be worse than under Obama; with him, you knew where you stood, how to navigate the sanctions…you never know with Trump.

"Everyone's afraid."

The news agency also reported that Swiss lender Banque de Commerce et de Placements - whose clients include Hellenic Petroleum, Total, and Litasco - would suspend new transactions with Iran and wind down activities; even Russia's Rosneft is preparing to halt Iranian oil imports from November after a communication from the Kremlin.

If OPEC is indeed being challenged to meet demand, neither it nor Russia is willing to admit it; in fact, Alexander Novak, energy minister for the former Soviet Union, on Friday told media that his country could increase oil output by more than 200,000 bpd if needed to help OPEC and non-OPEC producers to increase production by their recently-agreed upon goal of 1 million bpd.

Novak remarked, "Of course we will also participate in order to ensure an increase by 1 million; if needed, with a larger scope of increase than 200,000."

Not everyone is affected by the emerging panic that seems to be gripping those in crude trading circles: CNBC earlier this week stressed that not all indicators point toward an ever-tightening market: "U.S. crude production is approaching 11 million bpd, and Saudi Arabia expects to match that in coming months as well."