Sun, Jun 24, 2018 - Page 16 News List

OPEC agrees to pump more oil, but prices still jump

QUESTIONS REMAIN:Oil prices rose after OPEC’s announcement. Analysts say investors believe the increase in output will be smaller than the agreed-upon 1 million barrels a day

AP, VIENNA

The countries of the OPEC cartel on Friday agreed to pump 1 million more barrels of crude oil per day, a move that should help contain the recent rise in global energy prices.

However, questions remain 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 is to be smaller, about 600,000 to 700,000 barrels a day.

After an OPEC meeting in Vienna, Emirati Minister of Energy 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 1 million barrels,” al-Mazrouei said.

How that translates into effective production increases is uncertain, as some OPEC countries cannot easily ramp up production. For example, Iran has been hit by US 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 percent to US$74.84 a barrel in London, and US crude climbing 4.9 percent 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 said the decision “is challenging for those countries that are struggling with keeping their level of production,” but 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, but 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 US demand for energy should eventually contribute to lower oil prices, which last month 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.”

US President Donald Trump has been calling publicly for the cartel to help lower prices by producing more and after OPEC’s deal on Friday, he tweeted: “Hope OPEC will increase output substantially. Need to keep prices down!”

Some analysts say that while Trump has blamed OPEC, his policies have also helped increase the cost of oil by, for example, limiting exports from Iran.

Daniel Yergin, the vice chairman of research firm IHS Markit and author of several books on the energy industry, says geopolitical factors are a big element in the oil production talks.

Saudi Arabia and the United Arab Emirates support the current, tougher US policy toward Iran, Saudi Arabia’s rival for influence in the region, so they will want to support Trump’s call for higher production and lower prices, Yergin said.

Iran will struggle to increase production, meaning that it could lose market share and revenue to its rivals, he added.

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