OPEC energy ministers scrambled to hammer out a compromise on oil output policy Friday as they debated a Saudi proposal to ramp up production that has encountered fierce resistance from sanctions-hit Iran.
The only way that OPEC as a group can possibly bring compliance with the deal agreed in November 2016 to 100 per cent - it was 164 per cent as of May, according to OPEC's own figures - is for countries with spare production capacity to pump more oil.
USA crude jumped 2.9 percent Friday and Exxon Mobil advanced 2.1 percent.
Falling production in Venezuela and Libya, as well as the risk of lower output from Iran as a result of USA sanctions, have all increased market worries of a supply shortage. And after OPEC's deal Friday, Trump tweeted: "Hope OPEC will increase output substantially". Trump wrote on Twitter after OPEC announced its decision.
The United States, China and India had urged OPEC to release more supply to prevent an oil deficit that would hurt the global economy.
The countries of the OPEC oil cartel agreed Friday to effectively increase their combined production by nearly 1 million barrels a day, though questions remain over some of the members' ability to do so amid domestic trouble and sanctions.
Returning to 100 percent compliance with the OPEC+ deal - scheduled to begin next month - would result in about 700,000 additional barrels of production increases for OPEC, rising to around a million when incorporating production increases from its allies outside the bloc. However, industry sources familiar with the oil cartel's deliberations said the actual increase is likely to total around two-thirds of Saudi Arabia's target.
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"Zanganeh can go back to his country and say "I won", because we are keeping the original agreement unchanged". Iran had demanded Opec reject calls from US President Donald Trump for an increase in oil supply, arguing that he had contributed to a recent rise in prices by imposing sanctions on Iran and Venezuela. That means the country has little to gain from a deal to raise output, unlike Saudi Arabia.
Moreover, US restrictions on trade in oil extraction technology and equipment is casting a shadow on the production capacity of other countries in the medium to long term. Those which can not, will not. For example, if OPEC were to plug its production shortfall (+0.7 mb/d) and Russian Federation add 0.2 mb/d for the whole of 2H18, we would only expect a slim market surplus of 0.1 mb/d yet this would require an unprecedented increase in core-OPEC and Russian Federation production and would leave the market with little remaining spare capacity.
Also, others with high production levels will not be allowed to fill the gap.
"Some of the countries. are not going to be able to produce, so the others will". Consumers can rest assured that "their energy supplies are available, are being stewarded by a responsible group of producers". This is due to the political crises in Venezuela and Libya, as well as Iran's preparation to face the effects of renewed USA sanctions.
Additionally, in a sign of strong demand, US refineries processed a seasonal record of 17.7 million barrels per day (bpd) of crude oil last week, according to the EIA.
Kazempour has said that Venezuela's supply should recover, at least partially, in the next three or four months. Yesterday, the Brent-WTI spread narrowed once again as WTI moved higher while Brent prices fell.
"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.