The countries of the OPEC oil cartel agreed Friday to effectively increase their combined production by almost 1 million barrels a day, though questions remain over some of the members’ ability to do so amid domestic trouble and sanctions.
After a meeting in Vienna, Emirati Energy Minister Suhail al-Mazrouei said the cartel decided to fully comply with its existing production ceiling.
Because the cartel had been producing below that ceiling, that effectively means an increase in production. The minister said the difference between that amounts to “a little bit less than 1 million barrels.”
How that translates into effective production increases is uncertain, as some OPEC countries cannot easily ramp up production. Iran, for example, has been hit by U.S. sanctions that hinder its energy exports. Venezuela’s production has dropped amid domestic political instability.
The price of oil jumped after the announcement, with the international benchmark, Brent, gaining $1.61 to $74.66 a barrel.
Friday’s decision means OPEC will observe the production level it agreed on in late 2016, when it cut output by 1.2 million barrels a day. In practice, its combined output was even less due to production problems. That has since then helped push up the price of oil by almost 50 percent.
Non-OPEC countries like Russia had agreed in 2016 to participate in OPEC’s effort to raise prices, cutting 600,000 barrels a day of their own production. They will discuss with OPEC on Saturday on whether to increase their own production.
While OPEC’s largest producer, Saudi Arabia, is seen to be open to higher production, Iran has been hesitant because of its trouble to increase output and tensions with the U.S. President Donald Trump has been calling publicly for the cartel to help lower prices.
The production limits by the Organization of the Petroleum Exporting Countries and Russia since 2016 have helped increase oil prices, with the benchmark U.S. crude contract hitting its highest level in more than three years in May. Some analysts note that while Trump has blamed OPEC, his policies have also helped increase the cost of oil by, for example, limiting exports from Iran.
Some analysts believe that Saudi Arabia needs a Brent price closer to $90 a barrel to cover its domestic spending but is feeling pressure from the United States to head off rising prices by boosting output. Russia may be happy to pump more oil and settle for prices in the $60s, according to Tamar Essner, chief energy analyst for Nasdaq.
There are other considerations than dollars and rubles.
Daniel Yergin, the vice chairman of research firm IHS Markit and author of several books on the energy industry, says geopolitical factors are a big element in the oil production talks.
Yergin said Saudi Arabia and the United Arab Emirates support the current, tougher U.S. policy toward Iran, Saudi Arabia’s rival for influence in the region. So they will want to support Trump’s call for higher production and lower prices. Iran will struggle to increase production, meaning it could lose market share and revenue.