OPEC agreed on a modest inc-rease in oil production from July after leader Saudi Arabia persuaded arch-rival Iran to cooperate following calls from major consumers to help reduce the price of crude and avoid a shortage.
The decision confused some in the market as OPEC gave opaque targets for the increase, making it difficult to understand how much more it will pump. Oil prices rose as much as three per cent. “Hope OPEC will increase output substantially. Need to keep prices down!” US President Donald Trump wrote on Twitter less than an hour after OPEC announced its decision.
The US, China and India had urged OPEC to release more supply to prevent an oil deficit that would hurt the global economy.
The Organization of the Petroleum Exporting Countries said in a statement that it would go back to 100 per cent compliance with previously agreed output cuts but gave no concrete figures.
Saudi Arabia said the move would translate into a nominal output rise of around one million barrels per day, or one per cent of global supply. Iraq said the real increase would be around 770,000 bpd because several countries that had suffered production declines would struggle to reach full quotas.
The deal gave a tacit green light to Saudi Arabia to produce more than OPEC currently allows as the 14-nation group avoided setting individual country targets.
Iran, OPEC's third-largest producer, had demanded it reject calls from Trump for an increase in oil supply, arguing he had contributed to a recent rise in prices by imposing sanctions on Iran and fellow member Venezuela.
Trump slapped fresh sanctions on Tehran in May, and market watchers expect Iran's output to drop by a third by the end of 2018. That means the country has little to gain from a deal to raise OPEC output, unlike top oil exporter Saudi Arabia. However, Saudi Energy Minister Khalid al-Falih convinced his Iranian peer Bijan Zanganeh to support the increase just hours before yesterday’s OPEC meeting.
OPEC and its allies have since 2017 been participating in a pact to cut output by 1.8 million bpd. The measure helped rebalance the market in the past 18 months and lifted oil to around $75 per barrel from as low as $27 in 2016.
Yesterday’s agreement had been largely priced into the market and was seen as modest. “It will be enough for now but not enough for the fourth quarter to address a decline in Iranian and Venezuelan exports," said Gary Ross of S&P Global.