OPEC officials are meet this morning at their Vienna HQ to decide whether to back a proposal to raise the collective production target of the group and allied producers by 1 million b/d. Iran may (or may not) vote against this, meaning the deal wouldn’t have unanimous backing; this is concerning as Iran has veto power and a negative vote could effectively split the oil cartel.
An official increase of +1 million b/d may translate to roughly +600kb/d in actual barrels because several producers are already maxed out, Bloomberg reports citing a delegate familiar with OPEC’s internal calculations. The proposal was the most popular of 4 scenarios discussed Thursday evening by a joint committee of OPEC and non- OPEC ministers, and laid out previously. As we also reported, Iran’s minister walked out of that meeting before it concluded, sending oil lower, and has said several times this week that OPEC shouldn’t boost production, especially after U.S. President Trump urged OPEC to do so.
Heading into Friday, Russia has been pushing for a large collective increase of 1.5mb/d; repealing much of the supply cuts that began 18 months ago. Saudi Arabia – pressured by Donald Trump – has cited consumer concern about a potential 2H supply shortfall as one rationale for seeking a supply increase. India, the world’s 3rd-largest oil consumer, echoed that sentiment Wednesday. On the other side, Iran and Venezuela, who’ve been most vocal against ending output cuts, are themselves suffering from falling oil exports as Iran copes with threat of U.S. sanctions and Venezuela’s economy collapses
So on Friday morning, as OPEC delegates sat down in a private session in Vienna to hammer out an agreement, sources had initially suggested that ‘building [a] consensus [would] be a big challenge’ and “not all OPEC members were likely to accept the Ministerial Committee’s proposal for an oil output increase of around 1mln BPD.”
Whilst source reports had also suggested that Iran were doubting a consensus could be reached a more collaborative tone was struck after last minute talks and negotiations, with Iran stating that the meeting with the Saudi Oil Minister was positive.
Following this meeting, multiple oil ministers confirmed that a compromise deal including a higher Iran quota may be part of the agreement and the 1mln BPD increase was an overestimation. The real effect is to be 700k BPD as according to the Nigerian Energy Minister.
As discussed last night, OPEC in theory needs the agreement of all members to clinch a deal, including Iran, but has in the past agreed production pacts without Iran.
“We are cooking something,” Iranian Oil Minister Bijan Zanganeh told reporters after meeting Saudi Energy Minister Khalid al-Falih before the OPEC talks. Iran, OPEC’s third-largest producer, has so far been the main barrier to a deal as it called on OPEC to reject pressure from U.S. President Donald Trump to pump more oil, with analysts noting that the deal is “in Iran’s hands now.”
According to Reuters, Iran had demanded that U.S. sanctions be mentioned in the group’s post-meeting communique, as Tehran has blamed U.S. measures for the recent rise in oil prices, although that appears unlikely and if Iran is unyielding on the point, it may make a deal impossible.
Oil is largely unchanged on the day, and is eagerly awaiting the news from the OPEC summit.
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