Organization of the Petroleum Exporting Countries (OPEC) agreed with Russia and other oil-producing allies on Saturday to raise output from July, with Saudi Arabia pledging a “measurable” supply boost but giving no specific numbers.
On Friday, the organization announced an OPEC-only production agreement, without clear output targets, as Brent oil rose by $2.5 or 3.4 percent on the day to $75.55 a barrel.
Russia joined partner countries in backing an OPEC-led pledge to boost oil production in response to growing global demand, announced Angolan Oil Minister Diamantino Azevedo.
"We have agreed," Azevedo told reporters after a meeting between OPEC and non-OPEC ministers.
The suggestion was widely expected after energy ministers already agreed to raise output by one million barrels a day.
OPEC agreed on Friday on a modest increase in oil production from next month after its leader Saudi Arabia persuaded arch-rival Iran to cooperate, following calls from major consumers to curb rising fuel costs.
But the agreement failed to announce a clear target for the output increase, leaving traders guessing how much more OPEC will actually pump. Oil prices rose by $1.85 to $74.90 a barrel.
Investors fear a possible decline in international demand, at the time this sector continues to detoriorate in Venezuela.
Analysts at Saxo Bank indicated Saudi Arabia wanted to ease fears of emerging markets about increased prices. Riyadh indicated that countries capable of increasing its production can compensate what other countries can’t reach, such as Venezuela.
OPEC and allies’ commitment to the agreement led to an increase in the prices over the past two years.
US President Donald Trump was among those wondering how much more oil OPEC will deliver. “Hope OPEC will increase output substantially. Need to keep prices down!” Trump wrote on Twitter after OPEC announced its decision.
In a statement, OPEC said it would raise supply by returning to 100 percent 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 1 million barrels per day (bpd), or 1 percent 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.
Russian Oil Minister Alexander Novak declared he was glad with the organization’s decision, however, he did ask OPEC and non-OPEC earlier to raise output by 1.5 million bpd.
On Saturday, Saudi Energy Minister Khalid al-Falih said that OPEC had invited Russia to join the oil producer group as an observer. “We have invited Russia to join as an observer. We believe they are considering it,” Falih told a news conference.
“I can assure that the entire membership of OPEC would welcome Russia,” he said.
Iran, OPEC’s third-largest producer, had demanded the organization reject calls from Trump for an increase in oil supply, arguing that he had contributed to a recent rise in prices by imposing sanctions on Iran and fellow member Venezuela.
Trump imposed 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 output, unlike Saudi Arabia.
Iranian Oil Minister Bijan Zanganeh said the real increase could amount to as little as 500,000 bpd because Saudi Arabia would not be allowed to pump more on behalf of Venezuela, where output has collapsed in recent months.
“Each country which has produced less (than its allocation) can produce more. Those which cannot, will not... This means that Saudi Arabia can increase its production by less than 100,000 bpd,” Zanganeh told Argus Media.
But Falih said pro-rata quota reallocation did not have to be strict, meaning Saudi wanted to fill the gaps left by others.
“Some of the countries ... are not going to be able to produce, so the others will. And that implies there will be indirectly a reallocation,” Falih said.
OPEC and its allies have since last year been participating in a pact to cut output by 1.8 million bpd. The measure had helped re-balance the market in the past 18 months and lifted oil to around $75 per barrel from as low as $27 in 2016.
But unexpected outages in Venezuela, Libya and Angola have effectively brought supply cuts to around 2.8 million bpd in recent months.
Falih warned the world could face a supply deficit of up to 1.8 million bpd in the second half of 2018.
US Energy Secretary Rick Perry will meet Russia’s oil minister next week in Washington, a person familiar with the situation said on Friday, as the two countries compete to supply global markets with natural gas and crude.
Perry will meet Novak on Tuesday, in the context of the World Gas Conference that is being held in Washington, the source said. The two countries are competing to sell natural gas in Europe.
Meanwhile, oil prices increased on Friday after oil producers agreed to modest crude output increases to compensate for losses in production at a time of rising global demand.
Brent crude settled up $2.50, or 3.4 percent, to $75.55 a barrel, while US crude rose $3.04, or 4.6 percent, to $68.58 a barrel, getting an additional boost after a surprise large drawdown at the storage hub at Cushing, Oklahoma.
Brent crude was up 2.7 percent on the week, while US crude was up 5.5 percent.
