Oil rises as OPEC stops short of output hike

Trump's Blow to Iranian Oil Sparks Curious Price Divergence

The relationship between two major oil benchmarks is charting an unexpected course

OPEC, Russia and other countries ignored USA calls to increase crude oil production, sparking a Monday rally that saw Brent futures soar past the $80 mark. That suggests OPEC's power to influence the market will be tempered by US production for about another decade.

Brent crude, the global benchmark for oil, rose by 3.3 per cent to $81.39 in NY after the Opec cartel of leading producers and Russian Federation ended a meeting in Algiers on Sunday without any firm commitment to boost output.

The U.S., which isn't an OPEC member and has in recent years seen a renewed boom in shale oil, will continue to grow as a crude producer, peaking in the late 2020s.

"I do not influence prices", Saudi Energy Minister Khalid al-Falih said.

Mr Trump said last week that OPEC "must get prices down".

"It is now increasingly evident that in the face of producers reluctant to raise output, the market will be confronted with supply gaps in the next three to six months that it will need to resolve through higher oil prices", BNP Paribas oil strategist Harry Tchilinguirian said. The benchmark Brent contract later stood at $80.85, up $2.05 from Friday's close.

The Organization of the Petroleum Exporting Countries' own estimates, according to its secondary sources such as researchers and ship-trackers, put Iranian output at 3.58 million bpd.

Analysts expect sanctions to remove between 500,000 and 1 million barrels per day out of the globe's oil market.

"OPEC did not guarantee that they would automatically replace lost Iranian barrels of oil due to sanctions", said Bob Yawger, director of the futures division at Mizuho Securities USA.

Meanwhile, OPEC sees oil demand retreating in the near-term, to 31.6 million barrels a day in 2023 versus 32.6 million barrels a day in 2017, but it will rise to current levels, again, around the time that the US shale supply peaks.

It also steeply raised USA oil output growth estimates to 2023, predicting OPEC would lose further market share. Rapid growth in USA production means that oil stockpiles could expand again next year, but it's too early to say whether the production limits agreed in 2016 would need to remain in place, he said. "If demand is 10.9 million barrels a day, you can certainly take it to the bank that we will meet it", he said.

"If we reduced our oil consumption by half, [the U.S. military] would act differently", said ESLC member Admiral Dennis C. Blair, the former Director of National Intelligence and Commander in Chief of the U.S. Pacific Command. That's the highest price for Brent since it touched $80 a barrel briefly in May.

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