OPEC countries to pump more oil to contain price increase
The countries of the OPEC cartel agreed on Friday to pump one million barrels more crude oil per day, a move that should help contain the recent rise in global energy prices.
Questions remain, however, over the ability of some OPEC nations — Iran and Venezuela in particular — to increase production as they struggle with domestic turmoil and sanctions.
After a meeting in Vienna, Emirati Energy Minister Suhail alMazrouei said the cartel decided to fully comply with its existing production ceiling.
Because the group had been producing below that level, that effectively means an increase in production. The minister said that amounts to “a little bit less than one million barrels.”
How that translates into effective production increases is uncertain, as some OPEC countries cannot easily ramp up production. Iran, for example, has been hit by U.S. sanctions that hinder its energy exports. Venezuela’s production has dropped amid domestic political instability.
The price of oil jumped after the announcement, with the international benchmark, Brent, gaining US$1.74 to $74.79 a barrel.
Al-mazrouei noted that the decision “is challenging for those countries that are struggling with keeping their level of production.” However, he indicated that some countries could pick up production if others lag.
“We will deal with it collectively,” he said.
Analyst Abhishek Deshpande from bank Jpmorgan said that OPEC’S deal will contribute to lower oil prices in the longer term.
Adding to that, U.S. shale oil
production could rise and its demand for energy could decrease this year, further squeezing the price of oil, which in May hit its highest level in over three years.
“The wild card will be U.S. shale and demand growth,” said Deshpande.
Friday’s decision means the Organization of the Petroleum Exporting Countries will observe the production level it agreed on in late 2016, when it cut output by 1.2 million barrels a day. In practice, its combined output was even less due to production problems. That has since then helped push up the price of oil by almost 50 per cent.
NON-OPEC countries like Russia had agreed in 2016 to participate in OPEC’S effort to raise prices, cutting 600,000 barrels a day of their own production. They will discuss with OPEC today on whether to increase their own production.
While OPEC’S largest producer, Saudi Arabia, was open to higher production, Iran has been hesitant because of its trouble to increase output and tensions with the U.S. President Donald Trump has been calling publicly for the cartel to help lower prices by producing more.
After OPEC’S deal on Friday, Trump tweeted: “Hope OPEC will increase output substantially. Need to keep prices down!”
Some analysts note that while Trump has blamed OPEC, his policies have also helped increase the cost of oil by, for example, limiting exports from Iran.