5 Things To Know About Oil Markets Ahead Of This Week's OPEC Meeting

OPEC, the cartel of petroleum exporting nations, will be meeting this week in Vienna. As this week that the oil market is close to rebalancing.

Thus the question before the fourteen production to offset losses from Venezuela and other OPEC members who are facing involuntary declines.

Iran is loudly protesting any increases in production because the new US sanctions will make it difficult for the country to sell the oil it already produces. Iran is already forced to sell its oil at a discount and production increases across the board would only hurt the country’s revenue even more. It also feels snubbed by its fellow OPEC members after OPEC rejected Iran’s request to support Iran against the new U.S. sanctions.

Iran’s OPEC governor said on Sunday that, “If the Kingdom of Saudi Arabia and Russia want to increase production, this requires unanimity. If the two want to act alone, that’s a breach of the cooperation agreement.” He also said that, “Three OPEC founders are going to stop it,” (referring to Iran, Iraq and Venezuela).

This does not necessarily mean that Saudi Arabia and Russia’s proposal is dead on arrival. OPEC members often make strong statements such as these before meetings and then are able to find compromise in Vienna. No country wants to permanently ostracize itself from the power that comes with OPEC membership.

Iraq also opposes any across the board increase in production. However, Iraq has been overproducing beyond its allocation since the production cuts began. According to Platts , Iraq produced 4.47 million bpd in May, which is 0.12 million bpd over its production allocation. Given that Iraq has requested an exemption from the production cuts at almost every OPEC meeting since November 2016—when the cuts were first approved—it is safe to say that Iraq really does want to produce more oil. It's just that Iraq wants to be the only one producing above its allocation.

Kuwait and the UAE have been largely silent so far, but they are likely to support Saudi Arabia’s proposal to gradually increase production in some way. Hot tempers and strong language heading into an OPEC meeting are not uncommon. There will be three days of meetings this week. First, countries that sit on the Joint Ministerial Monitoring Committee (JMMC) will meet on Thursday and evaluate compliance and production rates. OPEC will hold its meeting for all governors on Friday, and then the non-OPEC ministers will join for the joint meeting on Saturday.

According to the Ecuadorian oil minister, Russia and Saudi Arabia have proposed a joint OPEC and Non-OPEC production increase of 1.5 million bpd. However, given that most producer nations other than Saudi Arabia, Russia, the UAE, Kazakhstan, and Ecuador don’t have much spare capacity, actual increases would be less than 1.5 million bpd—if this proposal is adopted.

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Meanwhile, Saudi Arabia's al Falih continues to push for what he considers a “reasonable and moderate” but “inevitable” agreement to increase oil production.

The market seems to expect an increase in oil production from OPEC and Russia, so if no agreement to raise output is reached, oil prices will certainly jump. On the other hand, there are indications that, regardless of the organization’s decision on Friday, certain producers may open the taps in coming months.

Author's Note: For an extended look at how OPEC and Russia will impact the oil market, check out the Energy Week Podcast .

Written By: Ellen R. Wald, Ph.D