OPEC Likely to Decide on Increasing Oil Production Next Month

Reuters has reported, citing several industry sources familiar with OPEC member negotiations, that the organization is likely to decide to increase production at next month's meeting due to Iran's sanctions, the decline in Venezuela's oil production, and warnings from the U.S. regarding rising oil prices. Oil-exporting countries, OPEC, along with Russia, have reduced their daily production by 1.8 million barrels per day since the beginning of last year to lower global strategic oil reserves. International statistics, including those from OPEC and the International Energy Agency, indicate that global strategic oil reserves have reached the lowest level in five years. Reuters writes that Gulf Arab countries have raised the issue of increasing OPEC oil production to decide when and by how much to increase production to prevent oil prices, currently around $80, from rising further. A source from the Gulf Arab states told Reuters that all options are on the table. The decision to increase OPEC production could be made in June, but the amount of increase is still unclear. Reuters reports that OPEC's compliance with production cuts in April was about 66% higher than what it had committed to, due to the continued significant decline in Venezuela's oil production. The U.S. is also considering imposing oil sanctions against this country. According to the latest monthly statistics from OPEC published on its official website, Venezuela's daily oil production last month reached 1 million 436 thousand barrels. This figure was about 2 million 154 thousand barrels in 2016. In other words, over the past two years, Venezuela's oil production has fallen by about 50%, and statistics show that the country's production is decreasing every month. The report adds that OPEC and other countries led by Russia may reduce their compliance with the oil agreement. A source told Reuters that several scenarios are currently being studied. One of them is that OPEC may decide to cut production next month, but in practice, the production level may increase a few months later. The U.S. recently exited the Iran nuclear deal and is set to grant waivers to Iranian buyers every six months in exchange for a significant reduction in oil purchases from this country. Thus, in November of this year, the six-month waiver regime is expected to be implemented, and there is still an opportunity to compensate for the decline in Iranian oil exports. Reuters reports that Khalid al-Falih, the Saudi oil minister, intends to meet with his Russian and Emirati counterparts next week during a trip to St. Petersburg to discuss increasing oil production. Recently, the Iranian oil minister commented on the possibility of increasing OPEC oil production due to Iran's sanctions, stating that 'OPEC decisions are made by consensus.' Reuters writes that the rapid pace of decline in global strategic oil reserves, concerns over the consequences of the U.S. exit from the JCPOA, and the continued decline in Venezuela's production have prompted OPEC to consider increasing production. Recently, U.S. President Donald Trump also criticized OPEC for 'artificially keeping oil prices high.' A source told Reuters that Saudi Arabia, as the largest OPEC producer, is studying the impacts of U.S. sanctions against Iran and wants to compensate for the decline in the Islamic Republic's oil exports, but it will not be able to do so alone.