OPEC agrees to raise crude output to balance consumer pressure and stabilise prices

The majority of participants at the OPEC+ meeting held in Vienna on 23 June 2018 agreed to target 100% compliance with crude output quotas, by bringing 1mn b/d back to market over 2H2018, easing concerns about supply shortages and looking to prevent oil price spikes. It has been reported that since the cuts were first agreed in late-2016, production had risen to exceed targeted compliance by 152%. However, Iran has yet to confirm what level of compliance it will agree to, given the reinstatement of sanctions by the US.

According to Ann-Louise Hittle, Vice President, Macro Oils, at Wood Mackenzie, the markets should expect less oil price volatility and risk to economic growth as a result of the latest agreement, which ‘represents a compromise between responding to consumer pressure and the need for oil-producing countries to maintain oil prices and prevent harming their economies’. However, she did warn that: ‘No one yet knows what impact sanctions against Iran will have on its production, nor is there certainty about the risk to Venezuela’s output in the months ahead.’

Saudi Arabia is reported to have stated that the group will call an emergency meeting if further adjustment to the 1mn b/d increase is deemed necessary, depending on what happens during 2H2018.

In addition, Russia is understood to be considering joining OPEC as an associate member.

Commenting on the OPEC+ agreement, Kirill Dmitriev, CEO of the Russian Direct Investment Fund (RDIF), said: ‘Long-term cooperation between Russia and Saudi Arabia in coordinating efforts of oil producing countries as well as creation of a new organisation on the basis of OPEC+ will help to overcome disagreements between producers and draft a joint strategy for action on global markets. The Russia-Saudi alliance has already demonstrated its leading role. This policy will guarantee oil price stability and investments in the energy sector in the long term. In bilateral relations, we expect that cooperation between Russia and Saudi Arabia in the OPEC+ format will double mutual investment between the two biggest oil producers within three years.’