Saudi Arabia: Deal can be done this week to boost oil supply

A man walks past an electronic stock quotation board outside a brokerage in Tokyo

A man walks past an electronic stock quotation board outside a brokerage in Tokyo

The odds of the Organization of Petroleum Exporting Countries reaching a deal on Friday have increased through the week.

While India is not in favour of oil prices as low as $30 a barrel, the prevailing price levels are too high and stand to hurt the country's fiscal situation, Petroleum Minister Dharmendra Pradhan said on Wednesday.

OPEC ministers arrived in Vienna today for crunch talks on whether to reverse a landmark pact curbing oil output, with Iran pushing back against Saudi and Russian calls to ramp up production again.

The controls were introduced in 2017 to prop up prices.

"It would seem that an aggregate increase in production for Opec+ of between 500,000 barrels per day (bpd) and 1 million bpd is the range that is being considered", Harry Tchilinguirian, head of oil strategy at French bank BNP Paribas, told Reuters Global Oil Forum.

The kingdom and its allies estimate that total cuts now amount to 2.8 million barrels a day. However, because most countries can't increase production, that would probably translate to just 600,000 barrels coming back on to the market - an increase in global production of about 0.5 per cent.

The convoluted plan shows the difficulty Saudi Arabia has in bridging the gap between the competing interests of different members. The proposal has yet to win the backing of all OPEC members, and may meet resistance from more hawkish countries in the group including Venezuela and Algeria as well as Iran.

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Regional rival Iran however is fiercely opposed to unwinding the agreed production curbs, as its oil industry is bracing for fresh sanctions following US President Donald Trump's decision to quit the worldwide nuclear pact.

"Today's EIA report appeared unequivocally bullish to WTI given a much larger than expected crude stock draw of nearly six million barrels that was more than double our anticipated increase", Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, said in a note.

There's a good reason for the two countries' opposition - neither have the ability to increase their own production. Iran does at least "understand the necessity to reduce cuts" and has agreed to discuss the matter, Oman's Oil Minister Mohammed Al Rumhy said earlier in the day. OPEC is meeting, and it is mulling over the idea of increasing output. But problems in Venezuela, Mexico and other nations mean the reduction in May was far higher. The cartel's largest producer, Saudi Arabia, wants higher prices but hears President Donald Trump, leader of its most important ally, lobbying openly for lower prices. That surge prompted the US president to complain on Twitter that the cartel was artificially inflating prices.

Prices of Brent Crude were down to $73.34 on Thursday, after highs earlier this month of around $80, while United States light crude CLc1 dropped $1 to $64.71.

Trump's involvement makes it hard for Tehran to accept a compromise.

"Any developments on OPEC can move us", said Phil Flynn, analyst at Price Futures Group in Chicago. "My fear is this will lead to energy poverty in many parts of the world".

"This puts Saudi Arabia in a tough position, as unanimity is needed for any accord to be reached", it added. Riyadh could also act unilaterally boosting output, as it did in 2011 after a meeting ended in acrimony without a deal. "They pay attention to consumer nations".

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