Opec oil-supply boost gets nod in Russian, Saudi win

VIENNA • Opec and its allies gave the final sign-off to an oil-production increase, sealing a victory for Saudi Arabia and Russia.

Major producers outside the Organisation of Petroleum Exporting Countries - including Mexico and Kazakhstan - met ministers from the cartel yesterday and endorsed a nominal output increase of 1 million barrels a day, said Ecuador's Minister of Hydrocarbons Carlos Perez.

In real terms, that would add 600,000 to 700,000 barrels a day of crude to the market over about six months, said Oman's Oil Minister Mohammed Al Rumhy.

Opec had reached an agreement on Friday to raise output by 1 million barrels a day after a last-minute compromise with Iran. The vaguely-worded statement was a fudge in the time-honoured tradition of the group, committing to boost output without saying which countries would increase or by how much.

The deal is a win for Saudi Arabia and Russia, which were the first members to suggest an increase and hold the most spare capacity. They now have the flexibility to respond to disruptions and moderate prices at a time when US sanctions on Iran and Venezuela threaten to throw the oil market into turmoil.

The terms of the deal were rather convoluted. The group's agreed production increase of 1 million barrels a day was described as "nominal" by Saudi Energy Minister Khalid Al-Falih. In reality, the accord will add a smaller amount of oil to the market because a number of countries are unable to raise their output.

Yesterday's agreement was as vague as Friday's, said a delegate. It did not detail how the increase would be split between Opec and non-Opec nations, said Mr Perez.

On Friday, every minister seemed to have his own interpretation of what the hike meant for the market. Iran saw no more than 500,000 additional barrels a day, Nigeria predicted 700,000 and Iraq said it could be as much as 800,000.

Official communiques from both meetings did not mention specifics, instead pledging that the group would focus on restoring its output cuts to the level originally agreed in 2016.

Some traders were far from confident the agreement will meet the multiple challenges Opec faces. The situation in Venezuela is volatile, with a wide range of predictions of how much further its production could slump as its industry unravels.

There are also growing signs that the renewed United States sanctions on Iran could have a larger impact than the 1 million-barrel-a-day reduction in exports seen in 2012.

US President Donald Trump, whose tweets played a part in prompting Saudi Arabia to push for an increase, indicated on Friday that he would be watching the progress of their new agreement closely.

"Hope Opec will increase output substantially," Mr Trump said on Twitter. "Need to keep prices down!"

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A version of this article appeared in the print edition of The Sunday Times on June 24, 2018, with the headline 'Opec oil-supply boost gets nod in Russian, Saudi win'. Print Edition | Subscribe