Published: Fri, June 22, 2018
Finance | By Jaime Brady

Position-Squaring Ahead of OPEC Meeting Boosting Prices

Position-Squaring Ahead of OPEC Meeting Boosting Prices

A production increase would help undo a 1.2 million barrel cut agreed on in late 2016 that has since helped push up the price of oil by nearly 50 per cent. Non-OPEC member Russian Federation had also agreed to that cut and will discuss with OPEC on Saturday whatever production increase the cartel agrees on Friday.

Reuters reported Saudi Arabian Energy Minister Khalid al-Falih telling reporters in Vienna that the oil market had now rebalanced and his aim was to prevent a shortage of crude in future that could squeeze the market.

"Our customers have spoken loudly and we must listen to them", Al-Falih said before the ministerial talks on Thursday.

Iran's oil minister, Bijan Namdar Zanganeh, questioned this week whether OPEC is united enough to reach any agreement, and said Trump had politicized the debate over oil prices. I've looked at the report flying in and I think it shows that there will be a deficit in the second half of this year of 1.6 - 1.8 million barrels assuming that the main production continues. The measure has helped rebalance the market in the past 18 months and lifted oil to around $74 per barrel from as low as $27 in 2016.

Opec sources also said Iran had demanded that US sanctions be mentioned in the group's post-meeting communique, as Tehran has blamed USA measures for the recent rise in oil prices.

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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.

Brent oil prices were up 1.9 per cent on Friday as the output boost had been largely priced in and was seen as modest. "This view leads to a small-implied stock draw in Q3 2018, followed by an inventory build in Q4 2018 which is expected to weaken prices heading into 2019 when we see an oversupply for the year", Hittle said.

OPEC is meeting in Vienna on Friday and Saturday and is expected to discuss potentially raising crude oil production now that prices have stabilized so far in 2018. He acknowledged not all of the cartel's members could increase output, in a reference to countries such as Venezuela. Zanganeh has said the president is to blame for high prices because of his unilateral withdrawal from the worldwide nuclear agreement.

Some analysts believe that Saudi Arabia needs a Brent price closer to $90 to cover its domestic spending but is feeling pressure from the United States to head off rising prices by boosting output. He said Opec could meet again in September to adjust the deal.

The planned sale of 5 percent of Aramco-in what would likely be the world's largest IPO ever-could bring Saudi Arabia US$100 billion if Saudi officials' valuation of the company at US$2 trillion stands. Segun Ajibola expressed concern over Nigeria's inability to determine global realities, adding that outcome of market decision could frustrate implementation of the budget, considering that oil revenue remained the country's basic income.The re-balance in the oil sector had aided Nigeria to exit economic shortfall and boosted reserves but Ajibola was anxious about the country's continuous dependence on a single source of revenue.

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