Daily Times

Russia on Saturday joined partner countries in backing an OPEC-led pledge to boost oil production in response to growing global demand, Angolan Oil Minister Diamantino Azevedo said.

“We have agreed,” Azevedo told reporters after a meeting with OPEC ministers and 10 non-OPEC partner countries in Vienna.

The green light was widely expected after energy ministers from the 14-member Organization of Petroleum Exporting Countries already agreed on Friday to raise output by one million barrels a day from July.

The proposal is the result of a face-saving compromise hammered out after days of diplomacy in Vienna dominated by tensions between Iran and archfoe Saudi Arabia over amending an 18-month-old supply-cut deal that has lifted oil prices to multi-year highs.

Saudi Arabia, supported by Russia, was strongly in favour of pumping more oil to ease fears of a supply crunch and quiet grumbles about the higher prices in major consumer countries like the United States, China and India.

But Iran, bracing for the impact of fresh US sanctions on its oil exports, fiercely objected to raising output targets, as did countries like crisis-hit Venezuela and Iraq who are unable to raise output in the near term.

In the end, a vaguely-worded statement that made no mention of the one-million figure allowed all sides to save face.

Ministers also acknowledged that production problems in several countries meant the real number of extra barrels coming to the market would be several hundred thousand less.

Markets were disappointed with the modest output hike, sending crude prices soaring on Friday.

Brent crude added $2.50 to finish at $75.55 a barrel, while the US benchmark West Texas Intermediate gained $3.04 at $68.58 per barrel.

As one of the world’s top producers, Russia’s cooperation in the supply-cut deal is seen as crucial.

Moscow had long argued for a hike, feeling the pressure from domestic oil companies eager to produce more so they can cash in on the higher prices.

Russia’s Energy Minister Alexander Novak had said ahead of Saturday’s meeting that it was “timely” for OPEC and its 10 partner countries, known as OPEC+, to raise production.

Numbers game

The OPEC+ supply-cut pact struck in late 2016 and set to run until the end of the year, called on participants to trim output by 1.8 million barrels a day.

But production constraints and geopolitical factors have seen several nations exceed their restriction quotas, keeping some 2.8 million barrels off the market, according to OPEC.

By agreeing to collectively raise output by a million barrels, members are simply committing to comply fully with the deal struck in late 2016 — allowing them to increase supply without undoing the original deal.

“I agreed to have 100 percent of compliance, not more,” Iran’s Zanganeh said as he left OPEC headquarters on Friday.

Saudi Arabia’s Energy Minister Khalid al-Falih said the agreement would “contribute significantly to meet the extra demand that we see coming in the second half”.

But the joint communique did not spell out how the additional barrels would be divvied up, a key issue given Iran’s insistence that cartel members should not be allowed to offset involuntary production losses in other member countries.

Much of the current production shortfall has come from Venezuela, where an economic crisis has savaged petroleum production.

In Libya, fighting between rival factions has damaged key oil infrastructure.

This week’s OPEC talks in Vienna have been the most politically charged in years.

US President Donald Trump, hoping for lower pump prices ahead of November’s mid-term elections, has been among the loudest critics of OPEC’s supply cut pact, piling pressure on key ally Riyadh to boost output.

Trump weighed in again after Friday’s OPEC decision was announced, tweeting: “Hope OPEC will increase output substantially. Need to keep prices down!”

Iran’s Zanganeh earlier this week accused Trump of trying to politicise OPEC and said it was US sanctions on Iran and Venezuela that had helped push up prices.

Published in Daily Times, June 24^th 2018.