Oil crosses $80 as producers decide against output hike

Oil prices jumped on Monday after a meeting between OPEC and its allies, led by Saudi Arabia and Russia respectively, ended without a formal recommendation for any additional supply hike.

Futures of global benchmark Brent crude jumped 2 percent, or $1.59, during trading on Monday to $80.12.

“Markets are responding to OPEC’s reluctance to raise production to completely offset the anticipated decline in Iranian output,” Edward Bell, commodities analyst at Emirates NBD, told Argaam.

“US president Donald Trump tried to slate OPEC into raising production by criticizing the producers’ bloc last week but clearly the members will still target levels that they believe are appropriate for the level of oil demand and that also suit their specific economic requirements,” he added.

A joint ministerial monitoring committee (JMMC), comprising energy ministers of OPEC and its non-member allies, met on Sunday in Algiers to discuss developments in the oil market. OPEC agreed with a group of 11 non-member countries to cut production by 1.8 million barrels per day (mbd) in a historic Declaration of Cooperation (DoC) in 2016.

“The JMMC noted that countries participating in the DoC have achieved a conformity level of 129 percent in August 2018, and 109 percent in July 2018,” an official statement said after yesterday’s meeting.

This shows “reasonable progress” towards OPEC and its allies’ resolution in June to adjust overall conformity to 100 percent, the statement added, noting that the committee “urged countries with spare capacity to work with customers to meet their demand during the remaining month of 2018.”

In June, OPEC and its allies agreed on a collective output increase of 1 mbd, which would fill the gap created by an economic collapse in Venezuela and fresh US sanctions on Iran. The output hike would be achieved by bringing down the compliance level to the 2016 production-cut agreement to 100 percent, from the over-commitment of nearly 150 percent that the group has shown in the past.

The alliance has been under pressure from US President Donald Trump’s administration to take action against steadily increasing oil prices by raising crude output.

The American leader on Friday reiterated his demand that the group act to reduce prices.

“The OPEC monopoly must get prices down now,” Trump tweeted.

On Sunday, however, the group signaled that it was in no hurry for an output increase, noting that it would boost output only if customers requested it. 

“The market is well-supplied,” Saudi energy minister Khalid Al-Falih said, cited by Bloomberg. “The reason Saudi Arabia didn’t increase more is because all of our customers are receiving all of the barrels they want.”

Write to Jerusha Sequeira at jerusha.s@argaamnews.com