Published: Fri, June 22, 2018
Money | By Michele Stevens

OPEC meeting set to determine direction of VLCC market

OPEC meeting set to determine direction of VLCC market

Iran will not accept Saudi Arabia's proposal to increase crude output of Organization of the Petroleum Exporting Countries (OPEC), Iran's representative to the OPEC was quoted as saying Tuesday. Within the group, Venezuela's oil output has collapsed to the lowest since the 1950s due to industry mismanagement, and Iran's petroleum exports are subject to renewed US sanctions.

Expressing his optimism over regaining balance to the worldwide oil market, Al Mazrouei said: "Looking ahead, I remain optimistic that we will fulfil our goal of delivering sustainable oil market stability, which is meant to serve the long term interests of producers, consumers and the global economy".

Though oil prices had a great start to this year, its course started reversing from late May courtesy of rising output concerns from two big players - Saudi Arabia and Russian Federation.

Oil's market report for the month of June by EIA and Opec showing a stable demand growth while Non-Opec supply growth increased a bit. "Now all countries want to extract more oil and the price of each barrel nearly costs twice as much as on the day of signing the agreement", he explained.

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EIA projects that US crude oil production will average 10.8 million barrels per day for full-year 2018, up from 9.4 million barrels per day (bpd) in 2017, and will average 11.8 million bpd in 2019.

"In any case, prices will decline when OPEC decides to produce more oil, but we will not go back to $40 per barrel".

The market traded higher on expectations that the production increases could be less than the full 1.5 million bpd, at 300,000 to 600,000 bpd, said Gene McGillian, director of market research at Tradition Energy in Stamford.

Supply disruptions in Venezuela and Libya also supported the market, he said.

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Non-OPEC members including Russia, Oman and Mexico also agreed to cut 558,000 bpd off their production to stabilise the market.

OPEC's second- and third-largest producers, Iraq and Iran, have said they would oppose output increases on the grounds that such moves would breach previous agreements to maintain cuts until the year-end.

The 174th Meeting of the OPEC Conference, the first full gathering of the year, is to take place on June 22nd in Vienna, Austria.

Oil prices have fallen due to the direct result of the market recalibrating to the likelihood of higher OPEC plus production in the second half of the year. Saudi Arabia's own data for May showed it increased its own output by 161,400 barrels a day. US President Donald Trump last week pushed ahead with tariffs on $50 billion of Chinese imports, starting on July 6.

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'Opec typically put aside political rivalries and agree on economic ones, but there is no disputing the current differences, which will make this meeting much more controversial and uncertain, ' said Rebecca O'Keeffe, head of investment at Interactive Investor. OPEC output was last lower in April 2017 at 31.85 million b/d, the last month before West African producer Equatorial Guinea became its newest member.

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