Daily Management Review

Modest Output Hikes Agreed By Opec Shores Up Oil Prices


06/25/2018




Modest Output Hikes Agreed By Opec Shores Up Oil Prices
Following the decision by Organization of the Petroleum Exporting Countries (Opec) and other oil producers to slightly increase the production output of oil to make up for loss in production and increase in demand, there was a rise in oil prices globally.  
 
The Opec and other producers including Russia has agreed to increase production by 1 million barrels per day (bpd) from July.
 
But according to Iraq, the actual increase in output would be about 770,000 bpd since a number of oil producers have recently suffered from reduction in production and have been unable to fill their quotas and the other producers collectively might not be able to fill the gap.
 
The actual increase in output however is lower than what had been portrayed to being discussed and therefore set a bullish tone.
 
“There was a lot of anticipation in the market that there was going to be a lot of new oil coming to market, and that isn’t going to happen, at least for now,” said John Kilduff, a partner at Again Capital.
 
“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.
 
Brent crude settled up $2.50, or 3.4 percent, to $75.55 a barrel.
 
There was a 4.6 per cent rise in U.S. crude with a rise of $3.04 at $68.58 a barrel.
 
Price of oil have come down from its three and half year highs for about three weeks before the OPEC meeting on concerns about the decision to have high levels of increase in output.
 
But after call from major customers about their concerns at reducing prices of oil, Saudi Arabia finally managed to convince Iran for cooperation to the plan to cut output.
 
Because some of the producers offered opaque targets for the increase, therefore Opec’s decision was confusing for some in the market. this made it difficult for the market to estimate the amount of planned increase in output. The markets were boosted after it realized that the actual increase in output would be lower than the expected 1 million bpd increase that was touted.
 
“The effective increase in output can easily be absorbed by the market,” Harry Tchilinguirian, head of oil strategy at French bank BNP Paribas, told the Reuters Global Oil Forum.
 
“You think about 1 million bpd coming back online ... it’s not going to happen instantaneously, it’s going to take time,” said Brian LeRose, the senior technical analyst at ICAP.
 
Opec and some of the major oil producers such as Russia had agreed to a cut in production of oil in 2017 and extended it this year to reduce the global oil glut and shore up prices. However, in recent months, there are some oil producers such as Venezuela and Libya that have seen a slump in production and hence there was threat of supply shortage. This shored up prices which forced some of the largest oil consumers such as China, the United States and India issuing warnings of supply side shortage. They demanded increase in production and consequent lowering of prices.
 
(Source:www.reuters.com)






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