Iran, Saudi oil ministers meet to avert showdown

Iran, Saudi oil ministers meet to avert showdown

Iran, Saudi oil ministers meet to avert showdown

Iran is particularly vocal about its objections as it braces for the impact of fresh U.S. sanctions on its oil exports after President Donald Trump quit the global nuclear agreement.

Iran had been expected to oppose any rise in crude output, but it has now signalled it may support a small increase.

Iran said on Tuesday OPEC was unlikely to reach a deal on oil output this week, setting the stage for a clash with Saudi Arabia and Russian Federation, which are pushing to raise production steeply from July to meet growing global demand.

Friday's decision means OPEC will observe the production level it agreed on in late 2016, when it cut output by 1.2 million barrels a day.

Front-month USA crude futures extended their rally, trading as much as $1.39 a barrel above the second month contract.

However, Saudi Energy Minister Khalid al Falih convinced his Iranian peer Bijan Zanganeh to support the increase just hours before Friday's OPEC meeting.

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The problem for traders and ministers trying to estimate the price needed to rebalance the market is that consumption responds to price changes with a delay of six to 18 months.

Benchmark Brent crude LCOc1 was unchanged at $75.08 a barrel by 1037 GMT.

OPEC energy ministers scrambled to hammer out a compromise on oil output policy Friday as they debated a Saudi proposal to ramp up production that has encountered fierce resistance from sanctions-hit Iran.

By avoiding setting individual country targets, the deal appears to give Saudi Arabia the leeway to produce more than its official OPEC target and fill the gap left by those like Venezuela who can not pump enough to meet their official allocation. OPEC ministers meet their non-OPEC counterparts on Saturday. In the past year, many promised to prioritize spending discipline over production expansion after previously rushing to pump more oil when prices recovered.

U.S. President Donald Trump had been calling publicly for the cartel to help lower prices by producing more.

Since an increase of 1 million bpd would shrink the cut to about 1.8 million bpd from 2.8 million bpd, it could provide a compromise by keeping the existing deal while raising output.

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If all Opec members produced as much as they were allowed under the deal, Opec output would in theory rise by about 740,000 barrels per day, based on Reuters estimates of the group's production in May.

Yergin said Saudi Arabia and the United Arab Emirates support the current, tougher USA policy toward Iran, Saudi Arabia's rival for influence in the region.

Most analysts agree that the increases are necessary to offset the declines in Venezuela due to the economic turmoil, and the drop in Iranian exports because of US sanctions.

Some analysts believe that Saudi Arabia needs a Brent price closer to $90 a barrel to cover its domestic spending but is feeling pressure from the United States to head off rising prices by boosting output.

There will be a deficit in the second half of this year of 1.6-1.8 million barrels.

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