VIENNA (Reuters) – OPEC agreed Friday on a modest increase in oil production from next month, after its leader Saudi Arabia called on arch-rival Iran to cooperate with demands from bulk consumers to lower crude oil prices and avoid one supply gap.
However, the decision confused some in the market as OPEC provided obscure goals for the increase, making it difficult to understand how much more it will pump. Oil prices rose 3 percent.
"Hope OPEC Will Boost Production Significantly Keep Prices Low!" US President Donald Trump wrote less than an hour on Twitter after OPEC announced its decision.
The US, China and India had urged Vienna-based OPEC to deliver more to prevent an oil deficit that would harm the world economy.
The Organization of Petroleum Exporting Countries said in a statement that it would reduce the previously agreed output cuts to 100 percent, but did not give specific figures.
Saudi Arabia said the move would result in a nominal increase in production of around 1 million barrels a day (bpd) or 1 percent of global supply. Iraq said that the real increase would be around 770,000 barrels a day as several countries experiencing declines in production would have difficulty reaching full quotas.
The deal gave Saudi Arabia a tacit green light to produce more than OPEC currently allowed, as the 14-nation organization avoided setting individual country targets.
Iran, OPEC's third-largest producer, demanded Trump's rejection of Trump's demand for an increase in oil supply on the grounds that he had contributed to a recent price increase by imposing sanctions on Iran and its Venezuelan member.
Trump imposed new sanctions on Tehran in May, and market observers expect Iran's output to fall by a third by the end of 2018. This means that unlike the top oil exporter, Saudi Arabia has little to gain from a deal to increase OPEC production. However, Saudi Energy Minister Khalid al-Falih convinced his Iranian counterpart Bijan Zanganeh to support the rise just hours before the OPEC meeting on Friday.
OPEC and its allies have been involved in a pact to reduce production by 1.8 million barrels per day since last year. Over the past 18 months, the measure has helped rebalance the market and raised oil price 1 from the current $ 27 to around $ 75 a barrel.
But unexpected defaults in Venezuela, Libya and Angola have reduced the supply cuts to 2.8 million bpd in recent months.
Friday's output boost was largely priced into the market and considered modest.
"It will be enough for now but not enough for the fourth quarter to tackle a decline in Iranian and Venezuelan exports," said Gary Ross, head of global oil analysis at S & P Global.
"There is not much free capacity in the world, so if we lose a million bpd production from Venezuela and Iran in the fourth quarter, where will all these barrels come from? Prices, "he said.
Falih warned that the world would face a supply deficit of up to 1.8 million barrels per day in the second half of 2018, and that OPEC's responsibility would be to take consumer concerns into account.
"We want to prevent the scarcity and pressure we experienced in 2007-2008," said Falih, referring to a time when oil prices rebounded to just under $ 150 a barrel.
OPEC's deal to lay off more supply centers to meet 100 percent of existing, agreed cuts. Current compliance is 40-50 percent above target due to lost production in Venezuela, Libya and Angola.
"As a group, we can meet 100 percent compliance, which is challenging as a single country," said UAE Energy Minister Suhail bin Mohammed al-Mazroui.
Zanganeh said the group would increase production by about 460,000 bpd if OPEC returned to regular compliance.
Iran has objected that members with additional capacity such as Saudi Arabia are filling Venezuelan output gaps.
"Both Saudi Arabia and Iran can show that they have won," said one OPEC delegate.
"Zanganeh can return to his country and say" I won "because we keep the original agreement unchanged.Falih can go back and say," We can increase production to meet the market needs. "
OPEC – And non-OPEC producers will meet on Saturday to iron out details of the pact and then in September to review the agreement The next formal OPEC meeting was scheduled for December 3.
For a graph of the IEA estimates of non-OPEC supply growth in 2018 click on reut.rs/2rJnnCO
For a graph of IEA global demand growth estimates, click on rs May – Reuters Survey click reut.rs/2JRWnw1
Graph in balance between global oil supply and demand click reut.rs/2MB4tH3
Additional coverage by Ahmad Ghaddar, Ernes t Scheyder and Vladimir Soldatkin; Writing and Editing by Dale Hudson and Dmitry Zhdannikov; Graphics by Amanda Cooper