Global crude oil prices are expected to trade lower following the decision of the Organisation of Petroleum Exporting Countries (OPEC) to raise oil output on June 22 following its 174th ordinary meeting. However, as there is no clarity on the quantity, the market will closely watch the levels of production hiked by OPEC.
The statement released after the ministerial meeting of the 14-nation cartel did not reveal details of the production increase to be allocated among members. However, Suhail Mohamed Al Mazrouei, UAE energy minister and OPEC chairman, told reporters that the increase would be “a little bit less than 1 million barrels” over OPEC’s current output.
In its previous meeting on November 30, 2017, OPEC had scrapped the previous output curb deal and formulated a new production accord to reduce output by 1.8 million barrels per day (bpd) from January 1, 2018 till the end of December 2018. This boosted crude prices which crossed $80 a barrel last month.
In the recent months, unexpected outrages in Venezuela, Libya and Angola pulled down supplies by around 2.8 million bpd. With US
Iran’s output is also likely to get affected after the US administration imposed sanctions over country.
Saudi and Russia hoped to increase output by 1 million bpd or around 1 per cent of global oil supply but Iran’s consent was key to the hike. Iran had recently voiced concerns against the output increase agreement, citing pressure from the US.
As an effect of increasing production, global crude prices are expected to trade lower as against the higher prices that were driven by the reduction in supplies by OPEC and Russia.
Meanwhile, US president Donald Trump has also asked OPEC members to bring the prices to optimum levels. The compliance levels of OPEC have been modestly above 100 per cent since the beginning of 2018 and compliance in April, as per JMMC’s report, stood at 152 per cent. The previous highest compliance was 133 per cent set in January, 2018.
Expressing concern over future supply, Saudi Arabian energy minister Khalid A. Al-Falih has said that the global oil market could witness deficit of 1.8 million bpd in the second half of 2018. If a 1 million bpd output hike were approved, Saudi Arabia would add about 0.25-0.3 million bpd to the supply.
On the daily chart, crude oil prices were trading within a range of 4300-4620 since the last few days amid volatility because of fundamental factors. The prices can test the higher boundaries of this trading range.
The author is a fundamental analyst at Karvy Comtrade