Oil: OPEC made an informed decision

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During today’s meeting, OPEC decided to increase quotas for oil production by 1 million barrels a day. Several representatives of OPEC said that the real increase in quotas will be 0.6-0.8 million barrels per day. So some intrigue remains. It will be resolved tomorrow, when will be declared final, joint decision.
Before the meeting was called different estimates of production of 0.3 million barrels to 1.5 million barrels, so the final decision can be called balanced. The main thing for OPEC is to maintain balance between supply and demand in the energy market, in this case will be performed and the purpose of the cartel is stable oil prices. OPEC will continue to keep abreast of and if necessary will make adjustments at the next meeting.
Today within OPEC consensus was not.
Saudi Arabia pushed for a more serious increase in quotas (Minister of energy of Saudi Arabia Khalid al-falih talked about the increase in production by 1.2 million barrels), and Iran, Iraq and Venezuela and urged to leave the quota at its current level. This is understandable – Iran and Iraq do not have the ability to quickly increase production, and the production of black gold in Venezuela and is stagnating and is in the verge of bankruptcy. In the first two weeks of June, the Venezuelan PDVSA exports fell by 32% to 765 thousand barrels per day.
At the same time, Saudi Arabia in recent months has hampered production, and the statistics for may indicates that the growth of production, the Saudis have begun even earlier than agreed with the others. A large part of increasing production will have on Saudi Arabia. In any case, the increase in quotas on oil production and 100% execution of the transaction OPEC+ will give all participants of the transaction additional income in the budget, stabilize the national currency, reducing the debt burden on fiscal policy, additional contributions to stabilization funds.
To some extent OPEC’s decision a formality – it often happens that agreements on paper don’t match the real production. It is significant that after the announcement of OPEC’s decision quotes Brent moved up to $75,2, but then quickly fell back to $74,4. We expect that next week the oil will be traded in the range of $73-76. Important for the market will have a reaction to the actions of OPEC over the United States.
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Roman Tkachuk,
Senior analyst,
Alpari