An OPEC technical panel has found that global oil demand is on pace to stay strong in the second half of this year, suggesting that the oil market could comfortably absorb a production increase without sending oil prices plummeting, Reuters reported on Tuesday, citing three OPEC sources.
A technical panel—a kind of economic body within OPEC—met on Monday to take stock of the oil market situation and to prepare a report for the ministers of the OPEC countries at their meeting later this week.
“If OPEC and its allies continue to produce at May levels then the market could be in deficit for the next six months,” one of the sources told Reuters.
“The market outlook in the second half is strong,” according to another source.
OPEC is up for a tough meeting in Vienna this week after the leaders of the two groups of the OPEC/NOPEC production cuts—Saudi Arabia and Russia—have signaled that they are willing to boost production to offset what is sure to be further supply disruptions, mostly from Venezuela’s collapsing oil industry and from a potential decline in Iran’s oil exports in view of the returning U.S. sanctions.
But it’s Iran and Venezuela—founding OPEC members and those most affected by U.S. sanctions and unable to boost production—that are most vehemently opposing an increase in the cartel’s production.
This faction is reportedly also supported by Iraq. Iran said over the weekend that it would veto any proposal for a production increase with the support of Venezuela and Iraq.
Saudi Arabia and Russia are proposing an increase of the OPEC and allies’ production by 1.5 million bpd, Ecuador’s Oil Minister Carlos Perez said upon arrival in Vienna on Monday.
According to one OPEC source who spoke to Reuters, the Saudi proposal of a 1.5-million-bpd production boost was “just a tactic”, to have wiggle room to negotiate a compromise with other OPEC members and settle on a lower number for the increased production, possibly between 500,000 bpd and 700,000 bpd.
Due to the staunch opposition to any production increase from the faction led by Iran and Venezuela, analysts expect this week’s OPEC meeting to be a very difficult one, comparing it to the 2011 meeting, which the then Saudi Oil Minister Ali al-Naimi described as “the worst OPEC meeting of all time,” Commerzbank commodities analyst Carsten Fritsch told Reuters. By Tsvetana Paraskova for Oilprice.com