The OPEC Agreement Puts A Floor Under Oil Prices

The OPEC Agreement Puts A Floor Under Oil Prices

The OPEC Agreement Puts A Floor Under Oil Prices

And exactly that happened this Friday, when after a heated debate inside the closed doors at its Vienna headquarters, the Organisation of Petroleum Exporting Countries (Opec) opted to increase output.

For about three weeks ahead of the Opec meeting, prices had retreated from 3-1/2-year highs on fears that larger production increases could lead to oversupply.

Oil Minister Dharmendra Pradhan during his speech earlier this week at the Vienna meet raised concern over under-supply in the market and added that high crude prices have the potential to impact economic growth worldwide and India. At one point, Iranian Oil Minister Bijan Zanganeh threatened to derail the deal altogether as he stormed out of the Joint Ministerial Monitoring Committee meeting after being denied the floor to question the estimated supply shortfalls.

Al-Falih went out of his way to give a detailed explanation of how the so-called OPEC+ deal will work, clarifying a vaguely worded agreement and contradictory statements from other ministers that spurred a rally in crude futures on Friday.

There are also growing signs that the renewed U.S. sanctions on Iran could have a larger effect than a 1 million barrel per day reduction in exports seen in 2012.

In reality, the accord would add a smaller amount of oil to the market, because a number of countries are unable to raise their output.

"We're hoping to come out of this with a reasonable decision", Saudi Energy Minister Khalid al-Falih told reporters moments before the OPEC meeting opened. Zanganeh has said the United States president is to blame for high prices because of his unilateral withdrawal from the global nuclear agreement and the imposition of fresh sanctions that could significantly curb Iran's crude exports.

Trade worries still loomed, however, as U.S. President Donald Trump, in his latest move, threatened to impose a 20 percent tariff on all European Union vehicle imports.

Brent crude settled up US$2.50, or 3.4 per cent, to US$75.55 a barrel.

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The non-members have already agreed to ratify the deal, which was sealed yesterday after a last minute compromise between Saudi Arabia and Iran, said delegates.

"Need to keep prices down!" he tweeted.

Brokered by Algeria, the deal to cut production volumes - following OPEC's 2014 attempt to break the US Shale-Oil industry by permitting the global supply overhang - nears its official end in the second half of the year. "We believe they are considering it", Khalid Al-Falih said at a press conference. "I can assure that the entire membership of OPEC would welcome Russian Federation".

Saudi Arabia's successful bid to persuade its rival Iran to ease curbs on oil extraction has produced a surge in the West Texas Intermediate (WTI) oil price to its highest since November 2016 to above $69/bbl.

That Opec finally managed a consensus is a success in itself when seen in the perspective of the clear split within the group on the issue of increasing output. That compares with the 1.97 million barrels permitted under the agreement.

"With the looming threat of an Iran walkout, the best you could get was deliberate ambiguity", said Helima Croft, global head of commodity strategy at RBC Capital Markets.

"The real increase of production would be a figure exactly close to 1 million", Novak said in an interview with Bloomberg television.

It has been decided that the next Opec and non-Opec Ministerial Meeting will convene in Vienna, Austria, on December 4, 2018.

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