Prices Dip Slightly on Reports Iran May Agree to Small Production Hike

Roman Schwartz
June 21, 2018

Tensions between Iran and Saudi Arabia broke out days before OPEC's meeting on Friday in Vienna, with Tehran indicating it would probably not abide to the cartel's plans to cut production.

But in practice it would mean a boost of less than a 10th of that amount, effectively from Saudi Arabia. The paper agreement would see production increase by 1 million barrels a day to bring the group back to target.

Oil prices have continued to drop after Iran and leading producers Saudi Arabia and Russian Federation agreed on a plan to increase production. India's trade deficit in May widened to $14.62 billion, the highest in four months, driven mainly by a 50 per cent surge in the country's oil import bill.

The U.S. has reimposed sanctions, but it doesn't want its consumers to pay the price for that at the pump.

A key challenge is how to share out the 1 million bpd, or whatever increase is eventually agreed.

Iran had been expected to oppose any rise in crude output, but it has now signalled it may support a small increase.

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When OPEC and its allies, which include Russia, Kazakhstan and Mexico, agreed to cut output in late 2016, they announced a 1.8 million-barrel-a-day reduction. That surge prompted the US president to complain on Twitter that the cartel was artificially inflating prices.

Brent crude futures, the worldwide benchmark for oil prices, were at $74.55 per barrel at 0040 GMT, down 19 cents, or 0.3 percent, from their last close.

Also supporting prices was a drop in Libyan supplies due to the collapse of an estimated 400,000-barrel storage tank. "OPEC is not part of the Department of Energy of the United States".

If the existing deal were retained and the Saudis felt a need to add more oil, Riyadh could increase output unilaterally, as it did after a meeting in June 2011 ended with no decision.

"OPEC is listening to consumers", Bob Dudley, the chief executive of BP Plc, said on the sidelines of the OPEC conference in Vienna.

-With assistance from Salma El Wardany, Annmarie Hordern, Manus Cranny, Elena Mazneva, Laura Hurst, Javier Blas, Grant Smith, Francois de Beaupuy and Golnar Motevalli.

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