OPEC Agrees to Hike Production

OPEC agreed on Friday to raise oil production by around 1 million barrels per day from July for the group and its allies, an OPEC source said.

The output gain is nominal. The real increase will be smaller because several countries that recently under produced oil will struggle to return to full quotas while other producers will not be allowed to fill the gap, two OPEC sources have said, Reuters reported.

The preliminary accord allows for an additional 600,000 barrels a day of oil to flow onto the market, about 0.5% of global supply, said a delegate.

That reflects a 1 million barrel-a-day adjustment on paper to the production cuts implemented by the Organization of Petroleum Exporting Countries and its allies, the delegate said, asking not to be named because the information is private.

The new deal would effectively roll back the deeper-than-intended cuts from countries such as Venezuela, returning the curbs back to the level originally agreed in 2016.

The final wording of the deal is still under discussion, the delegate said.

The accord is a much-needed show of unity after Iranian Oil Minister Bijan Namdar Zanganeh walked out of a meeting on Thursday evening, predicting that OPEC would not be able to convince him to back an increase.

Zanganeh met with his Saudi counterpart for private talks on Friday morning before the full OPEC meeting.

Iran had bridled at complaints on Twitter by US President Donald Trump that OPEC was artificially inflating oil prices, which touched $80 a barrel last month.

Zanganeh has said the US president is to blame for high prices because of his unilateral withdrawal from the international nuclear agreement and the imposition of fresh sanctions that could significantly curb Iran’s crude exports.

OPEC and its allies exceeded their pledged 1.8 million barrels a day of production cuts by 47% last month. Those additional supply losses have been largely unintentional, reflecting the collapse in Venezuela’s oil industry and long-term declines in Mexican output.

Saudi Arabia has enough spare capacity to offset those losses and keep a lid on prices, but Energy Minister Khalid Al-Falih acknowledged on Thursday that such a move isn’t politically palatable for his fellow OPEC members.

 The kingdom also wants to preserve the hard-won unity in the group of 24 oil producers that signed up to the original deal.

By the end of summer, additional crude should be flowing into the market, Al-Falih said before meeting fellow OPEC ministers on Friday.

Oil prices rose more than 1% on Friday as OPEC tried to agree a deal to increase output to compensate for losses in production at a time of rising global demand.

Benchmark Brent crude was up $1 a barrel at $74.05. US light crude was 80 cents higher at $66.34.

Oil prices have been on a roller-coaster ride over the last few years, with the international marker, Brent, trading above $100 a barrel for several years until 2014, dropping to almost $26 in 2016 and then recovering to over $80 last month.

The most recent price rally followed an OPEC decision to restrict supply in an effort to drain global inventories.

The group started withholding supply in 2017 and this year, amid strong demand, the market tightened significantly, triggering calls by consumers for higher supply.