The Organization of the Petroleum Exporting Countries reached an agreement in Vienna Friday that would effectively pump an additional 600,000 to 700,000 barrels a day onto world markets in a bid to moderate prices.
The deal to increase production was cast as a compromise hammered out by Saudi oil minister Khalid al-Falih and Iranian oil minister Bijan Namdar Zanganeh.
But analysts said that the final agreement was a setback for Iran. “The Iranians really caved, just caved,” Helima Croft, global head of commodity strategy at RBC, said. She said Iran “got none of the concessions it was seeking on production or a show of solidarity on sanctions.”
The new agreement would technically allow for an increase of 1 million barrels a day, but many of the OPEC countries are unable to boost production from current levels for technical as well as political reasons. Output could rise further by the end of the year.
The new production will help offset a drop in crude supplies from Venezuela, where political turmoil has hurt operations at the state-owned oil company Petróleos de Venezuela. It could also help balance markets once U.S. sanctions on Iran take hold in November.
But oil markets indicated concern that the new output levels might not be high enough. Crude prices jumped up after news of the OPEC accord. By 1:40 p.m., the price of the U.S. benchmark West Texas Intermediate was up nearly 5 percent at $68.76 a barrel, and the price of the international benchmark Brent grade was up about 2.5 percent, to $74.88 a barrel.
OPEC agreements are reached by consensus, so much attention this week fell on Iran’s oil minister. He had stormed out of a meeting Thursday evening, accusing the cartel members of being influenced by President Trump rather than by supply and demand. Not only will U.S. sanctions remove an estimated half-million barrels a day of Iranian oil from the market, but in recent months Trump had twice tweeted that OPEC was not producing enough oil and was letting prices rise too high.
“The President is very much here in spirit if not person,” Robert McNally, president of the consulting firm Rapidan Energy Group, said in an email from Vienna. “Iran insists that any increase not appear to be due to President Trump’s pressure campaign. But they also want OPEC to blame high oil prices partly on Trump’s sanctions.”
Nigeria’s oil minister, Emmanuel Ibe Kachikwu, said that OPEC would attempt to keep prices in the mid-60s in dollars, but that Trump was not the only consideration.
“When the price of oil is below $50, you’re never going to have a tweet that says, ‘Oh, we did a fantastic job,’ ” he said in a video interview with Bloomberg News. “It’s America first, but again it’s Nigeria first and it’s all the other countries first, too.”
Iran’s oil ministry had tweeted earlier in the week that Trump really wanted to increase prices “to justify US shale oil production but to escape American public pressure due to high prices, he attacks OPEC.”
OPEC has been working closely with non-OPEC oil producers, most notably Russia, which had joined output cuts by OPEC 18 months ago. However, political unrest in Venezuela and Libya reduced OPEC production more than anticipated, driving the price of the international benchmark Brent crude to $80 a barrel.
In talks in Moscow last week with Saudi leaders, Russian officials said they wanted to return to full production. OPEC leaders and non-OPEC oil exporting countries will meet Saturday to discuss the OPEC production agreement.
Barclays Research said in a note to investors that it expects Saudi Arabia to raise output by 300,000 barrels a day, Russia by 100,000 barrels a day and the United Arab Emirates and Kuwait by 200,000 barrels a day.
“To correct for the disruptions in Venezuela, other declines, and possibly to get ahead of the inevitable disruption in Iran, OPEC has agreed to raise output,” Barclays said.
But maybe not enough. “The market remains worried that any additional supply interruption and any potential geopolitical factor could threaten the supply flow,” Sara Vakhshouri, president of SVB Energy International, said. “Having Iran’s exports cut due to U.S. sanctions, beside the supply cuts in Venezuela and Libya, leaves little spare capacity in the event of an unexpected supply interruption.”