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Oil falls as production hike turns likely

22 June, 2018, 22:44 | Author: Shawna Walton
  • High oil prices hurting fiscal balance, says Pradhan

At 0852 GMT, August WTI crude oil futures are trading at $66.28, up $0.74 or +1.11% and August Brent crude oil is at $74.03, up $0.99 or +1.35%.

But other OPEC members want no increase or a nominal one, and Iran remained a key holdout after ministers met Thursday to try to craft a compromise ahead of the main meeting.

Falih said the overwhelming majority of producers had recommended raising output by 1 million bpd, gradually and on a pro-rata basis.

Benchmark U.S. crude hit its highest level in more than three years in May, but U.S. and worldwide prices have eased since then in anticipation that OPEC will approve more drilling.

Iran is particularly vocal about its objections as it braces for the impact of fresh United States sanctions on its oil exports after President Donald Trump quit the worldwide nuclear agreement.

OPEC takes its decisions by unanimity, so if Iran were to wield its veto Saudi Arabia would be left only with the option of assembling a coalition of willing countries to bypass Tehran's opposition.

Brent reached a 3-1/2-year high above $80 a barrel last month but has fallen steadily in recent weeks as Saudi Arabia, de facto leader of OPEC, has signaled it intends to raise production to stabilize prices.

"If China's import demand dries up, more than 300,000 bpd of USA crude will have to find a new destination", energy consultancy FGE said.

MINISTER of Energy, Industry and Mineral Resources Khalid Al-Falih said in Vienna on Thursday increasing oil supply by 1 million barrels per day would be a good target as the Organization of the Oil Exporting Countries and allies such as Russian Federation meet in Vienna this week.

When OPEC and its allies, which include Russia, Kazakhstan and Mexico, agreed to cut output in late 2016, they announced a 1.8 million-barrel-a-day reduction.

"While we are not in favour of prices as low as $30 per barrel, we also do not support the prevailing high price which dent our fiscal balance and undermine our development process", Mr. Pradhan added.

Given the production restraints in some countries, the one million barrels per day proposal would in reality end up adding several hundred thousand barrels to the market.

"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.

"There is a lot more at stake than just ticking a box and say: 'we got this out of the way", the minister said, nothing that "timing isn't critical for the government of Saudi Arabia".

"It will be enough for now but not enough for the fourth quarter to address a decline in Iranian and Venezuelan exports", said Gary Ross, head of global oil analytics at S&P Global. Other OPEC members like Iran, Iraq and Venezuela have opposed this idea.

Falih has warned the world could face a supply deficit of up to 1.8 million bpd in the second half of 2018 and that OPEC's responsibility was to address consumers' worries.

Zanganeh has said that if OPEC returned to regular compliance, the group would raise output by around 460,000 bpd.

That would effectively mean a modest boost from producers such as Saudi Arabia that has been cutting more deeply than planned despite production outages in Venezuela and Libya. Consecutive increase in inventory is not good for a stable market price so also is a sudden fall in inventory due to higher oil price.

He acknowledged that a big production hike might be "politically unacceptable" to some OPEC countries and said it was important to be "sensitive" to those concerns.

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