OPEC agrees to pump more oil but crude prices jump anyway
The countries of the OPEC cartel agreed on Friday to pump one million barrels more crude oil per day, a move that should help contain the recent rise in global energy prices.
Questions remain, however, over the ability of some OPEC nations - Iran and Venezuela in particular - to increase production as they struggle with domestic turmoil and sanctions.
Oil prices rose after OPEC's announcement, which analysts cited as evidence that investors believe the actual increase in production will be smaller, about 600,000 to 700,000 barrels a day.
After an OPEC meeting in Vienna, Emirati Energy Minister Suhail al-Mazrouei said the cartel decided to fully comply with its existing production ceiling.
Because the group had been producing below that level, that means an increase in production of "a little bit less than one million barrels," the Emirati minister said.
How that translates into effective production increases is uncertain, as some OPEC countries cannot easily ramp up production. Iran, for example, has been hit by United States sanctions that hinder its energy exports. Venezuela's production has dropped amid domestic political instability.
The price of oil jumped after the announcement, with the international benchmark, Brent, gaining 2.5 per cent to US$74.84 a barrel in London, and US crude climbing 4.9 per cent to US$68.72 a barrel in afternoon trading in New York - on track for its biggest one-day rise since OPEC agreed in November 2016 to cut production.
Al-Mazrouei noted that the decision "is challenging for those countries that are struggling with keeping their level of production." However, he indicated that some countries could pick up production if others lag.
"We will deal with it collectively," he said.
US shale oil production has helped offset some of OPEC's cutbacks since 2016. However, operators in the Permian Basin of Texas face a shortage of pipeline capacity, "trapping a fair amount of oil and limiting the availability of that shale increase," said Jim Rittersbusch, a consultant to oil traders.
Still, some analysts believe that a combination of the OPEC deal, US oil, and an easing of American demand for energy should eventually contribute to lower oil prices, which in May hit their highest levels in more than three years.
"Longer term, this is a bit of a win for consumers," said Jamie Webster, director of Boston Consulting Group's Center for Energy Impact. "More oil on the market means relatively lower prices for consumers."
Friday's decision means the Organisation of the Petroleum Exporting Countries will observe the production level it agreed on in late 2016, when it cut output by 1.2 million barrels a day. In practice, the reduction was even deeper due to production problems. That has since then helped push up the price of oil by almost 50 per cent.
Non-OPEC countries like Russia had agreed in 2016 to participate in OPEC's effort to raise prices, cutting another 600,000 barrels a day of their own production. They will discuss with OPEC on Saturday on whether to increase their production.
While OPEC's largest producer, Saudi Arabia, was open to higher production, Iran has been hesitant because sanctions imposed by US President Donald Trump are making it difficult for the country to export its oil.