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Days of tense. often dramatic. negotiations ended with a commitment to slightly less than 1 million b d of theoretical output increases distributed across all the 24 members of the OPEC pact with allies including Russia.
No firm numbers were specified in OPEC`s final meeting communique. with the group instead emphasizing that each producer group would pump to its full individual quota. doing away with over-compliance.
Saudi energy minister Khalid al-Falih — who pushed hard for an increase in output — said the volumes amounted to `just under 1 million b d` for OPEC and its 10 non-OPEC partners. led by Russia.
Debate had been fraught. with Iran`s oil minister Bijan Zanganeh at one point storming out of a meeting during the week and repeatedly objecting to changing output levels in response to US President Donald Trump complaining on Twitter about high oil prices.
But Zanganeh appeared satisfied when he left the meeting despite his country facing the prospect of US sanctions. which Tehran hoped would be denounced.
He said full compliance — without any increase in quotas — was `what I wanted from the moment I arrived` in Vienna.
`We didn`t discuss about number of barrels.` he added. `We agreed to comply 100% of the resolution between the OPEC member countries.`
However. figures provided by ministers ranged between 600.000- 800.000 b d on the actual volume of additional crude they expect OPEC to bring to market.
`When they say 1 million b d and when they say 600.000 b d. there was a strategy there.` said Abhishek Deshpande. JP Morgan`s head of oil market research and strategy. who was in Vienna observing the OPEC proceedings. `They said 1 million to appease the consumers. and they said 600.000 to tell the market. `Don`t drop because we are doing 1 million b d.“
DOING THE MATH
More clarity may emerge on Saturday when OPEC is to meet with its non-OPEC allies. The next OPEC non-OPEC monitoring committee meeting is scheduled for September 1 in Algiers and the next full OPEC meeting is December 3 in Vienna.
Michael Cohen. head of energy commodities analysis for Barclays Capital. said the stakes were too high for OPEC not to come to an agreement and risk any kind of market volatility in the months ahead. The status quo of maintaining its alliance on the production cut agreement was the best option.
`They see a threat to the global economy from higher oil prices and a threat to the long-term demand for their oil from higher oil prices.` Cohen said. `If oil goes to 100 b [and] then back down. that creates a very difficult situation for OPEC to handle. We saw how difficult it was to get a cut together in 2016. Stability is key.`
OPEC produced 31.90 million b d in May. according to the latest S&.P Global Platts OPEC survey. Output of the 12 members with hard quotas was 710.000 b d below their combined caps.
Venezuela accounts for some 610.000 b d of that.
The International Energy Agency estimated that the non-OPEC participants produced 220.000 b d above their caps in May.
That leaves the combined 24-country OPEC non-OPEC coalition with around 500.000 b d of cushion under its total ceiling.
So it is still unclear how a 1 million b d production increase would enable the coalition to remain in compliance with its individual quotas.
MESSAGE FROM TRUMP
Saudi`s Falih suggested negotiations will take place between countries with spare capacity to increase production and those unable to do so.
S&.P Global Platts Analytics estimates OPEC spare capacity at 2 million b d. of which Saudi Arabia holds the vast majority. And it expects the deal to result in a net realized increase in OPEC production of 700.000 b d. largely from the kingdom.
`We know that certain countries don`t have the spare capacity while others do. so it will be disproportional in terms of which countries are actually able to pump the additional crude.` Falih said.
Meanwhile. Trump seized the opportunity to remind OPEC he will continue to keep them under pressure on oil prices climbing too high.
