Oil prices climbed rapidly on word that OPEC oil ministers had agreed to a moderate increase in oil production on Friday, June 22. WTI rose by as much as 3% before the market opened and Brent was up over 2% as OPEC made its announcement. The spirit of compromise and consensus prevailed at what some analysts expected to be one of “the worst OPEC meetings.”
Initially, it appeared as though ministers were very far apart. Iran said it would not support any increase in oil production whereas Saudi Arabia was reportedly looking for an increase of as much as 1 million barrels per day. After several bilateral meetings between Iran and other producers, the oil ministers reached a compromise that will effectively increase the amount of oil on the market.
Rather than increasing each country’s production allocations, OPEC will instead strive for 100% compliance with the overall production ceiling agreed to in November 2016 . Oil markets appeared to react to this sentiment as opposed to the market implications.
According to Nigerian oil minister Emmanuel Ibe Kachikwu, this will amount of about 700,000 additional barrels per day. According to Saudi oil minister Khalid al Falih, production increases will be in proportion to each producer’s current production allocation. Only OPEC members that have spare capacity are expected to be able to increase.
It seems that OPEC resolved its internal differences by not addressing them. When questioned at the press conference, OPEC president and UAE oil minister Suhail Mazroui said that OPEC did not decide how the effective increase in production would be spread across member countries, due to “differences between countries.” He added that of course it does not make sense to allocate production to a country that is unable to produce more. Without saying it outright, OPEC is essentially giving tacit approval for countries with spare capacity to produceover their allocation numbers.
All 24 members of the OPEC and non-OPEC production group, including Russia, will meet on Saturday.
Ellen R. Wald, Ph.D. is a historian & consultant on energy and geopolitics. She is the author of Saudi, Inc.and president of Transversal Consulting.
Pic: VIENNA, AUSTRIA – JUNE 22: Saudi Arabia’s Minister of Energy, Industry and Mineral Resources, Khalid Al-Falih speaks to media during the 174th Ordinary Meeting of the Organisation of Petroleum Exporting Countries (OPEC) in Vienna, Austria on June 22, 2018. (Askin Kiyagan/Anadolu Agency/Getty Images)