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Opec agrees modest hike in oil supply after Iran softens stance

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Two Opec sources said the group agreed that Opec and its allies led by Russia should increase production by about one million barrels per day (bpd), or one per cent of global supply.

[VIENNA] Opec members have agreed on a combined increase in crude oil output of one million barrels per day, the oil minister of the cartel’s kingpin Saudi Arabia said Friday.

“I am pleased that at the end of the day we reconciled around the one million figure that we have been talking about,” said Khaled al-Faleh after a meeting of the Organization of the Petroleum Exporting Countries (Opec).

Support for the increase, which had been proposed by Saudi Arabia against objections from Iran, was unanimous, he said.

Opec sources Reuters contacted have said that the real increase will be smaller because several countries that recently underproduced oil will struggle to return to full quotas while other producers will not be allowed to fill the gap.

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Iran, Opec’s third-largest producer, had demanded that Opec reject calls from US President Donald Trump for an increase in oil supply, arguing that Mr Trump had contributed to a recent rise in prices by imposing sanctions on Iran and Venezuela.

Saudi Arabia, backed by non-member Russia, has argued that it is time to raise production in order to meet growing demand and appease major consumer countries like the United States, India and China who have complained about a sustained increase in prices since output was cut back from January last year.

“I think it will contribute significantly to meet the extra demand that we see coming in the second half,” the Saudi minister said.

Opec and its allies have since last year been participating in a pact to cut output by 1.8 million bpd. The measure has helped rebalance the market in the past 18 months and lifted oil to around US$75 per barrel from as low as US$27 in 2016.

But unexpected outages in Venezuela, Libya and Angola have effectively brought supply cuts to around 2.8 million bpd in recent months.

World oil prices, which had already stood higher earlier on Friday, continued to rise after Opec’s decision, commodities traders reported.

Mr al-Falih has warned the world could face a supply deficit of up to 1.8 million bpd in the second half of 2018 and that Opec’s responsibility was to address consumers’ worries. “We want to prevent the shortage and the squeeze that we saw in 2007-2008,” he said, referring to a time when oil rallied close to US$150 per barrel.

Opec’s deal to release more supply centres on the idea of returning to 100 per cent compliance with existing, agreed cuts. Current compliance is around 40-50 per cent above target because of production outages in Venezuela, Libya and Angola.

Iran has objected to having members with additional capacity such as Saudi Arabia fill Venezuelan output gaps.

Mr al-Falih also said the real increase for Opec and non-Opec would be smaller than the nominal gain of one million bpd. He said Opec could meet again in September to adjust the deal.

The United States, which rivals Russia and Saudi Arabia for the position of world No 1 oil producer, is not participating in the current supply pact.

AFP/REUTERS