OPEC oil ministers gather to discuss production level

Jeannie Matthews
June 22, 2018

A dip in oil prices over this last week suggest that the market is factoring in a likely rise in production levels.

The Organization of the Petroleum Exporting Countries meets on Friday to set output policy amid calls from U.S. President Donald Trump and China to cool down oil prices and support the global economy by producing more crude.

The fund seeks to match the inverse performance of the spot price of light sweet crude oil.

Iran's representative to OPEC, Hossein Kazempour Ardebili, told Bloomberg on Sunday that "Three OPEC founders are going to stop it". That could keep a cap on prices and limit how much money Opec makes at higher production levels. In fact, he tweeted twice specifically targetting OPEC. But U.S. production has not reached the maximum rates in the past year and in the first half of this year. Infrastructure constraints in the Permian are real, but so far they have not slowed output.

Oil prices slipped on Tuesday in volatile market conditions ahead of a meeting between major producers later this week to discuss pumping more.

Oil's market report for the month of June by EIA and Opec showing a stable demand growth while Non-Opec supply growth increased a bit.

It estimated OPEC production had risen by 50,000 b/d in May to 31.69 million b/d.

What Opec doesn't want to do is hurt demand, Thummel said. These numbers suggest that U.S. and handful of other non-OPEC countries will more than meet global demand.

However, in late May, oil prices dropped in light of the reports about a possible relaxation of conditions of the OPEC-non-OPEC deal.

For tanker owners, there is much at stake on 22 June when OPEC oil ministers gather in Vienna for what is likely to be a particularly bad-tempered meeting. Venezuela experiences severe production outage, and already lost 350,000 barrels / day this year with the decline accelerating. The pressure spread to commodity currencies and the Australian dollar slid below 75 United States cents. "This could make a huge dent in the USA bid to export oil", he added. That modest rise marked a fourth straight weekly climb, likely signalling further gains in U.S. output levels. A fall in oil prices would soothe concerns about the burgeoning current account deficit and take the pressure off the rupee. "They've tried to cut inventories on a global basis back in line with this five-year average".

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"Clearly investors have already priced in some easing on the production limits that OPEC has had in place now for some time", said Peter Kenny, senior market strategist at Global Markets Advisory Group, in NY.

Iran, the world's third largest crude producer, has reportedly said that Venezuela and Iraq will join it in blocking a Saudi/Russia proposal to raise oil production.

U.S. crude exports to China have been rising sharply, thanks to a production surge in the past three years that was a welcome alternative to make up for the cut in supplies from Opec and Russian Federation.

Oil traders are closely watching a threat by China to react to US tariffs by putting a 25 percent duty on USA crude oil imports, which have been surging since 2017 to a value of nearly $1 billion per month.

China said Friday it would retaliate by slapping duties on several American commodities, including oil.

"Every decision in OPEC needs the unanimity and I don't believe in this meeting we can reach agreement", he said, adding the issue "has been politicized by President Trump".

Non-OPEC members including Russia, Oman and Mexico also agreed to cut 558,000 bpd off their production to stabilise the market.

This has lowered expectations regarding increasing the output to 300-800k barrels.

"This renewed commentary by Novak that they're looking for 1.5 million bpd of production is putting downward pressure on prices in a significant manner". We expect prices to be in broad range of $63 and $66 on the WTI, with heightened volatility ahead of the event.

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