OPEC discussing oil output increase to contain energy costs

High oil prices hurting fiscal balance, says Pradhan

OPEC members have agreed on a combined increase in crude oil output of one million barrels per day, the oil minister of the cartel's kingpin Saudi Arabia said Friday.

Logo of Organization of the Petroleoum Exporting Countries is seen at OPEC's headquarters in Vienna.

Saudi Arabia and Russian Federation on Thursday used a pre-OPEC meeting in the Austrian capital to float a proposal of bringing an extra one million barrels each day to the market.

The Organization of the Petroleum Exporting Countries and other top crude producers, meeting in Vienna, agreed to raise output from July by about 1 million barrels per day (bpd) after its de facto leader Saudi Arabia persuaded Iran to cooperate in efforts to reduce the price of crude and avoid a supply shortage.

On Thursday, however, Iraqi oil minister Jabar al-Luaibi said: "We are in comprehensive talks with all ministers, especially Saudi Arabia and Iran, and we are trying to narrow that gap between the two and we hope that this afternoon we will reach some sort of good compromise".

While OPEC's largest producer, Saudi Arabia, was open to higher production, Iran has been hesitant because sanctions imposed by U.S. President Donald Trump are making it hard for the country to export its oil.

Zanganeh said it was Trump who had created difficulty for the oil market by imposing sanctions against Iran and Venezuela yet he now expects OPEC to deal with the consequences by pumping more.

The tentative increase is less than many market participants feared, and helped buoy oil prices back above $75 a barrel from less than $73 a barrel earlier this week.

Brent oil prices rose 1% to 74.03 in London trading on Friday. Iran will struggle to increase production, meaning it could lose market share and revenue to its rivals.

Stocks of crude oil and refined products are now below their five-year averages and expected to continue falling in the second half of 2018 and through 2019. Ministers at the event have also indicated that Iran, which was expected to oppose an increase might now agree to a production hike.

Russia, which is not in Opec, has proposed producers raise output by 1.5 million bpd.

Saud Arabia's minister of energy, Khalid Al-Falih, said after Saturday's meeting that the exact allocation for each country would depend among other things on their production capacities.

He said that the world could face a supply deficit of up to 1.8 million barrels a day in the second half of the year, and maintained that it is OPEC's responsibility to address that imbalance.

"Yergin said Saudi Arabia and the United Arab Emirates support the current, tougher USA policy toward Iran, Saudi Arabia's rival for influence in the region, and so will want to support Trump's call for lower prices".

Oxford Economics suggests the actual increase in production will be around 600,000 barrels per day as not all countries can increase output.

"The market is going to say, 'That isn't enough, ' and 'How quickly is it going to come online?' That's when we're really going to resume the price increases", Flynn said.

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