OPEC and its allies are set for contentious meetings on 22 and 23 June as they review supply curbs put in place 18 months ago
OPEC will probably overcome internal disputes to agree on a production increase next week to temper rallying prices, according to a Bloomberg survey.
The Organization of Petroleum Exporting Countries and its allies are set for contentious meetings on 22 and 23 June as they review whether to unwind supply curbs put in place 18 months ago. While the producers able to revive production are ready to do so, there’s growing opposition from countries who can’t.
Eighteen of 31 analysts and traders in a global poll predicted that the 24 countries in the joint accord will agree to raise output when they meet in Vienna. Of those who predicted the size of the increase, the majority forecast about 500,000 barrels a day.
Since early 2017, OPEC and Russia have been leading a coalition of oil producers—known as OPEC-plus—in supply curbs aimed at clearing a global glut. With the excess now gone and risks to supply rising, the US is pressuring OPEC to relax the restraints as prices near $80 a barrel threaten economic growth. Saudi Arabia and Russia signaled last month they intend to boost production.
“I think we will see OPEC-plus agree to increase output at the meeting,” said Warren Patterson, a commodities strategist at ING Bank NV in Amsterdam, who anticipated OPEC would launch its “exit strategy” before it was signaled by Saudi Arabia last month.
Yet there’s resistance from inside the cartel as three of its founding members—Iran, Iraq and Venezuela—argue that OPEC shouldn’t submit to external pressure.
Venezuela and Iran in particular stand to lose, as additional Saudi and Russian barrels would probably be offsetting their losses. Venezuelan output has slumped because of an economic crisis, while Iran is subject to renewed US sanctions that could crimp its oil sales.
Few of the 24 countries in the broader accord are able to increase supplies and would likely suffer as increased Saudi and Russian output weakens prices.
The survey suggests, however, that opposition to the Saudi-Russian plans will prove ineffectual. As the two biggest producers could simply choose to increase supply without the consent of their partners, the other nations are expected to fall in line.
“Growing risks of greater disruptions in Venezuela and Iran speak to the group lifting volumes,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich.
Predictions for the scale of increase ranged from about 180,000 barrels a day to as much as one million barrels. While OPEC and its partners agreed a total cut of 1.8 million barrels a day, unplanned losses in Venezuela mean the actual reduction is about 2.4 million, data from the International Energy Agency shows.
Among the survey respondents who didn’t expect there would be an agreement to increase at the meeting, most said that the Saudis and Russia would go ahead and raise supplies regardless. Individual responses to the survey were anonymous.
As the output cuts are bigger than intended, the producers would only need to announce full compliance with their overall target to advertise that supplies will rise.
“Our best guess is currently that there will be no formal decision to change the production target, but a rather a type of agreement or understanding that compliance will be relaxed,” said Johannes Benigni, chairman of JBC Energy Group in Singapore.