Today's Paper Obits Today's Photos Style Opinion: Veterans Day, observed Weather NWADG Redesign Puzzles NWA Basketball 2018
story.lead_photo.caption Suhail Mohamed Al Mazrouei , minister of energy for the United Arab Emirates, said Friday in Vienna that the crude output decision is “challenging” for some countries, but he indicated others could pick up the slack.

VIENNA -- The countries of the OPEC cartel agreed Friday to pump 1 million barrels more crude oil per day, a move that should help contain the recent rise in global energy prices.

Questions remain, however, over the ability of some OPEC nations -- Iran and Venezuela, in particular -- to increase production as they struggle with domestic turmoil and sanctions.

Oil prices rose after OPEC's announcement, which analysts cited as evidence that investors believe the actual increase in production will be smaller, about 600,000 to 700,000 barrels a day.

After an OPEC meeting in Vienna, United Arab Emirates Energy Minister Suhail al-Mazrouei said the cartel decided to fully comply with its existing production ceiling.

Because the group had been producing below that level, that means an increase in production of "a little bit less than 1 million barrels," the UAE minister said.

How that translates into effective production increases is uncertain because some OPEC countries cannot easily ramp up production. Iran has been hit by U.S. sanctions that hinder its energy exports. Venezuela's production has dropped amid domestic political instability.

The vague language in the communique and lack of real targets could allow Riyadh and others to fine-tune their production to keep the market in check.

Al-Mazrouei noted that the decision "is challenging for those countries that are struggling with keeping their level of production." However, he indicated that some countries could pick up production if others lag.

"We will deal with it collectively," he said.

U.S. shale oil production has helped offset some of OPEC's cutbacks since 2016. However, operators in the Permian Basin of Texas face a shortage of pipeline capacity, "trapping a fair amount of oil and limiting the availability of that shale increase," said Jim Rittersbusch, a consultant to oil traders.

Still, some analysts believe that a combination of the OPEC deal, U.S. oil, and an easing of American demand for energy should eventually contribute to lower oil prices, which in May hit their highest levels in more than three years.

"Longer term, this is a bit of a win for consumers," said Jamie Webster, director of Boston Consulting Group's Center for Energy Impact. "More oil on the market means relatively lower prices for consumers."

Friday's decision means the Organization of the Petroleum Exporting Countries will observe the production level it agreed on in late 2016, when it cut output by 1.2 million barrels a day. In practice, the reduction was even deeper because of production problems. That has since then helped push up the price of oil by almost 50 percent.

Non-OPEC countries like Russia had agreed in 2016 to participate in OPEC's effort to raise prices, cutting another 600,000 barrels a day of their own production. They will discuss with OPEC today whether to increase their production.

While OPEC's largest producer, Saudi Arabia, was open to higher production, Iran has been hesitant because sanctions imposed by U.S. President Donald Trump are making it difficult for the country to export its oil.

Trump has been calling publicly for the cartel to help lower prices by producing more. And after OPEC's deal Friday, Trump tweeted: "Hope OPEC will increase output substantially. Need to keep prices down!"

Some analysts note that while Trump has blamed OPEC, his policies have also helped increase the cost of oil by, for example, limiting exports from Iran.

Some analysts believe that Saudi Arabia needs a Brent price closer to $90 a barrel to cover its domestic spending but is feeling pressure from the United States to head off rising prices by boosting output. Russia may be happy to pump more oil and settle for prices in the $60s, according to Tamar Essner, chief energy analyst for Nasdaq.

There are other considerations than dollars and rubles.

Daniel Yergin, the vice chairman of research firm IHS Markit and author of several books on the energy industry, says geopolitical factors are a big element in the oil production talks.

Yergin said Saudi Arabia and the United Arab Emirates support the current, tougher U.S. policy toward Iran, Saudi Arabia's rival for influence in the region. So they will want to support Trump's call for higher production and lower prices. Iran will struggle to increase production, meaning it could lose market share and revenue to its rivals.

Saudi Arabia has gone from being a price hawk, wary of raising production to alleviate increasing oil prices, to a dove. On Thursday, Saudi energy minister Khalid Al-Falih told his colleagues at a seminar in Vienna that there could be a supply shortfall of 1.6 million to 1.8 million barrels a day of oil later this year, making a reversal of the cuts imperative.

"We are not going to allow a shortage to materialize to the point where markets will be squeezed and consumers will be hurt," he said.

While he vowed to be "sensitive" to the concerns of producer countries like Iran and Venezuela, he made clear that Saudi Arabia was determined to increase supplies.

Falih said he hoped to keep the group together and to work in unison to head off extremes like prices that topped $100 a barrel in 2014, only to be followed by a sudden crash.

"One thing you can be assured of is, we will be responsive," he added. "We will release supplies."

The final communique made no mention of whether the kingdom, or any other member, could compensate for losses elsewhere.

"The lack of specificity is bullish for prices," said Joe McMonigle, senior energy analyst at Hedgeye Risk Management. "It's a mystery oil production increase because we don't really know the final numbers."

The vague language may help to preserve the hard-won unity of the group of 24 oil producers, whose cooperation ended a three-year price slump. It salvages an agreement that was very much in doubt on Thursday evening after Iranian Oil Minister Bijan Namdar Zanganeh walked out of a meeting with fellow ministers, predicting nobody could persuade him to back an increase.

"It wasn't easy, but everyone found a way to navigate the obstacles," said one minister, who asked not to be named discussing the details of the closed-door meeting. "The Iranian resistance was strong and the communique is the art of finding the middle ground."

Information for this article was contributed by Kiyoko Metzler, Anthony Mills, Geir Moulson, Rob Stevens and David Koenig of The Associated Press; by Stanley Reed of The New York Times; and by Wael Mahdi, Grant Smith and Nayla Razzouk of Bloomberg News.

Business on 06/23/2018

Print Headline: OPEC nations decide to pump more crude

Sponsor Content