Oil prices rise ahead of OPEC’s June 22 meeting

Crude Oil

Crude Oil

De-facto Opec leader and top crude exporter Saudi Arabia, as well as Russian Federation, which is not a member of the cartel but is the world's biggest oil producer, are pushing to loosen supply controls introduced in 2017 to prop up prices.

The talks, which continued without Zanganeh, sought to lay the groundwork for Friday's gathering of the 14-nation Organization of Petroleum Exporting Countries (OPEC), when the cartel will discuss easing a supply-cut deal with 10 partner countries that has pushed crude prices to multi-year highs.

OPEC's third-largest producer, Iran, has so far been the main barrier to a deal as it had said on Tuesday OPEC was unlikely to reach an agreement and should reject pressure from US President Donald Trump to pump more oil.

Even though Saudi Arabia's headline figure calls for a 1 Mbd increase in crude supply to be phased in throughout the second half of the year, the actual physical barrels being added will amount to less.
Assuming that the main production continues, that will continue to drive inventories down, we think that that would be, you know, probably too short of a supply situation, that we can not allow to happen.

"We were teased with an increase of about 1.8 million barrels (per day) at one point, and we ended up getting about 600,000", Kilduff said.

Falih said the exact mechanics of any increase would be decided among all OPEC members on Friday.

Zanganeh told CNNMoney's Emerging Markets Editor John Defterios that OPEC and other major producers should address rising prices by increasing output to the maximum allowed under the terms of the agreement, which came into force in 2017.

Iran had been expected to oppose any rise in crude output, but it has now signalled it may support a small increase. USA light crude was $1.00 lower at $64.71.

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This would nearly certainly lead to a sharp drop-off in Chinese purchases of USA crude, which have boomed in the last two years to a business now worth around $1 billion per month. Washington made the request just before Trump pulled out of the Iran nuclear deal and restored sanctions on Tehran, the Saudis' chief regional rival, Reuters reported.

Iran's Oil Minister Bijan Namdar Zanganeh walked out that meeting, telling reporters he did not think an agreement could be reached. That may seem insignificant in a global supply of 98 million barrels a day, but critically it would reverse reductions that the same countries approved in late 2016, helping push crude higher by more than 50 percent. Iran is usually not part of the committee, which includes Russia, Saudi Arabia, the United Arab Emirates, Oman, Kuwait, Algeria and Venezuela.

Iran's Zanganeh has accused Trump of trying to politicise OPEC and said it was United States sanctions on Iran and Venezuela that had helped push up prices.

Many traders expect this discount to widen further should the flow of US oil to China slow, meaning that other producers would have to deal with high volumes of cheap American oil becoming available in other big markets, including Europe.

OPEC's deal to release more supply centres on returning to 100 percent compliance with existing, agreed cuts.

OPEC is an worldwide organization with 14 members and doesn't take orders from anyone, Zanganeh said.

"I think it would create a carousel affect where China then buys more alternate grades and other importers buy more USA grades", a trader with a global merchant said.

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