HE Suhail Mohamed Al Mazrouei, UAE Minister of Energy and Industry; and
President of the OPEC Conference (l), with HE Mohammad Sanusi Barkindo,
OPEC Secretary General
HE Mohammad Sanusi Barkindo, OPEC Secretary General
Group photo of the OPEC Ministers taken at the OPEC Secretariat in Vienna
Following the 174th OPEC Meeting, a press conference was held at the OPEC Secretariat
LONDON (Reuters) - Brent crude oil fell on Monday as investors
prepared for an extra 1 million barrels per day (bpd) in output to hit
the markets after OPEC and its partners agreed to raise production.
Despite
the increase, which is intended to stop the gap between global supply
and demand from becoming too wide, analysts said global oil markets
would likely remain relatively tight this year.
Brent crude
futures LCOc1 fell $1.15 to $74.40 a barrel by 1448 GMT, while U.S.
light crude CLc1 rose 20 cents to $68.78 a barrel, supported in part by a
Canadian supply outage.
Prices initially jumped after an OPEC
deal to increase output was announced late last week, as it was not seen
boosting supply by as much as some had expected.
OPEC and
non-OPEC partners including Russia have since 2017 cut output by 1.8
million bpd to tighten the market and prop up prices.
“OPEC
are really going all-out to prevent oil prices from biting in the
second half of the year,” SEB head of commodities Bjarne Schieldrop
said.
“It was a very strong message - we are going to meet demand and we’re not going to disappoint consumers.”
After officially meeting on Friday, OPEC gave a press conference on Saturday that implied a bigger increase in supply.
“Saturday’s
OPEC+ press conference provided more clarity on the decision to
increase production, with guidance for a full 1 million bpd ramp-up in
2H18,” Goldman Sachs said in a note on Sunday.
“This is a larger
increase than presented Friday although the goal remains to stabilize
inventories, not generate a surplus,” the U.S. bank added.
Largely
because of unplanned disruptions in places such as Venezuela and
Angola, the group’s output has been below the targeted cuts, which it
now says will be reversed by supply increases, especially from OPEC
leader Saudi Arabia. Analysts warn however there is little spare
capacity for large-scale output increases.
“As yet there is
no plan as to how the limits will be reallocated. One simple approach
would be to reduce the limits of those not producing enough by 600,000
bpd and increase the limits of members with spare capacity by 600,000
bpd – this would enable 100 percent compliance,” said Callum MacPherson,
Investec head of commodities.
Goldman Sachs also warned
that an “outage at Syncrude Canada’s oil sands facility could leave
North America short of 360,000 bpd of supply for all of July”.
It added that this “will exacerbate the current global deficit, making the increase in OPEC production all the more required”.
The
premium of Brent crude over U.S. futures narrowed to around $5.21 a
barrel on Monday, down from nearly $10 a week ago, thanks to the steep
drop in the premium of U.S. coastal grades over the West Texas
Intermediate benchmark price.
Additional reporting by Henning Gloystein in SINGAPORE; Editing by Jan Harvey/David Evans
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