OPEC+ deal balances consumer pressure with need for stable prices

LONDON/HOUSTON/SINGAPORE, June 23, 2018 – The OPEC+ meeting, held in Vienna today, confirmed Saudi Arabia and Russia’s high-level commitment to co-operate to manage the oil market.

Ann-Louise Hittle, vice president, macro oils, at Wood Mackenzie, said: “The 1 million barrels per day (b/d) increase will be monitored closely by the JMMC and means the market is less likely to slip out of control into significant oversupply or undersupply.  

“It is an effective way to deal with the uncertainty we noted ahead of the meeting as one of the major problems ministers needed to address. No one yet knows what impact sanctions against Iran have on its production, nor is there certainty about the risk to Venezuela's output in the months ahead.” 

Saudi Arabia says the group will call an emergency meeting if further adjustment to the 1 million b/d increase is deemed necessary, depending on what happens during H2 2018.

She said the group has committed to bring production into 100% compliance, which means about 1 million b/d back over H2 2018, easing oil market concern about supply shortages and likely preventing oil price spikes.

Ms Hittle said: “We expect oil price impact to be more muted than the upward reaction on Friday, 22 June, because it is clear there will be tweaks to output, if needed.

“The markets should expect less oil price volatility and risk to economic growth because today's announcement represents a compromise between responding to consumer pressure and the need for oil-producing countries to maintain oil prices and prevent harming their economies.”

She added: “The difference in interpretation between Iran and Saudi Arabia about what the agreement means is immaterial to the oil market. The only country that can increase production is Saudi Arabia, so its interpretation of the deal is the one that matters.”

Saudi Energy Minister al-Falih said in an interview directly after this morning’s press conference that Russia is considering joining OPEC as an associate member.