In an effort to tackle a looming oil supply shortage, the Organization of the Petroleum Exporting Countries (OPEC) will be discussing output levels at its biannual meeting in Vienna on June 22–23. The cartel is expected to unwind its production cut agreement to calm oil prices.
New U.S. sanctions on Iran and a plunge in Venezuelan crude production have raised fears of a global supply shortage, sending prices above $80 a barrel in May. Some even speculated that oil prices could jump to and go beyond $100 per barrel next year.
Oil prices calmed in June after Saudi Arabia and Russia started discussing the possibility of increasing production.
Despite fierce opposition from Iran and Venezuela, OPEC and non-OPEC producers, including Russia, are expected to reach an agreement in Vienna to increase supply.
Iranian Oil Minister Bijan Zanganeh criticized President Donald Trump on June 19, saying oil is not a weapon or a political tool.
“President Trump thinks that [he] can order OPEC and instruct to OPEC to do something. … It’s not fair, I think, and OPEC is not a part of the Department of Energy of the United States,” Zanganeh said.
Trump recently blasted OPEC for the spike in oil prices.
As of June 21, light, sweet crude for August delivery was trading at $65.80 a barrel on the New York Mercantile Exchange and price of Brent, the global benchmark, was priced at $73.15.
In December 2016, OPEC and Russia agreed to cut oil output by about 1.8 million barrels per day (bpd) in order to rebalance the market. Saudi Arabia’s new proposal is to unwind these cuts by adding nearly 1 million bpd to the global supply.
The Saudi proposal is based on a complex calculation, according to Phil Flynn, a senior energy analyst at the Price Futures Group.
“The kingdom and its allies estimate that total cuts now amount to 2.8 million barrels a day,” Flynn said in an email.
A quota increase of 1 million barrels a day may be too ambitious at this stage.
“In reality, because many countries that have cut the deepest can’t increase production, that would probably translate to just 600,000 barrels a day crude flowing back on to the market,” Flynn wrote.