The Organization for Petroleum Exporting Countries (OPEC) came together for a meeting in Vienna, the Austrian capital on Saturday, June 23rd 2018. The objective of this meeting was to come at a decision regarding increment in global oil supply. The idea was agreed upon by almost all of the 14-memeber group and its allied partner Russia barring Iran.
For the last 18 months, OPEC has been working towards its agreement with Russia and other producers to limit oil supply in the global market in order to raise the then dropped prices. In light of the fact that the oil prices recently hit a 3.5 year high, the fear of overheating the market led to the idea of increasing oil supply so as to reduce the prices.
The Iranian Government has been reluctant to increase output as it sees the intervention by Untied States in the decision of OPEC’s targets as high handed. According to a report by Reuters last week, the President Donald J. Trump had advised Saudi Arabia to increase oil supply which was met with severe criticism from other members participating in the cuts. The reluctance from Iran has also been mainly due to the acrimony between Iran and US.
Last month when Trump decided to withdraw from the Iran nuclear deal because the terms seemed to be too favorable towards Iran, it created further animosity between the two countries as USA placed financial restrictions on companies that would deal with Iran. The US action prompted Investors to look towards other markets in order to fill the gap created by Iran.
However the effect of sanctions on Iran is still undecided vis-a-vis their exact timetable of their implementation as Iran continues to contribute crude supplies to the global oil markets. “OPEC doesn't know if 200,000 or a million barrels of Iranian oil will be off the market,” said a CEO of multi-national oil Supply Company. The US sanctions expected to remove around 500,000 barrels from the world market by the end of this year.
Saudi Arabia and Russia urged major suppliers to increase production by 1 million barrels per day (bpd). This proposal was accepted by everyone except Iran which became the main barrier to an agreement.
After the meeting on Saturday, OPEC minister Alexander Novak in a statement said that, “We have concluded, and I'd like to say it was a consensual decision, that 1 million bpd of easing production cuts at the current stage should be sufficient,” the minister said. He went on to assure that OPEC was in no way “limiting themselves to a firm decision” and the supply might increase further but for now it was sufficient.