OPEC Could Raise Oil Output If Prices Increase, Shortages Mount

[Pavel + 384]

According to Reuters, OPEC could raise oil output from July if Venezuelan and Iranian supply drops further and prices keep rallying, because extending production cuts with Russia and other allies could overtighten the market, sources familiar with the matter said.Venezuelan crude production has dropped below 1 million barrels per day (bpd) because of U.S. sanctions. Iranian supply could fall further after May if, as many expect, Washington tightens its sanctions against Tehran. The combined supply cuts have helped to drive a 32 percent rally in crude prices this year to nearly $72 a barrel, prompting pressure from U.S. President Donald Trump for OPEC to ease its market-supporting efforts. OPEC has been saying the curbs must remain, but that stance is now softening. “If there was a big drop in supply and oil went up to $85, that’s something we don’t want to see, so we may have to increase output,” one OPEC source said. 
The market outlook remains unclear and much depends on how far Washington tightens the screw on Iran and Venezuela before OPEC’s June meeting, the source added.

[pinto + 293]

Sanctions are in direct link with oil market.  Oil sanctions imposed by the U.S. on Iran and Venezuela have significantly curtailed the amount of oil these countries exported....there are no compensations.

[francoba + 93]

Fighting in Libya has also helped push prices higher this week, although the violence has yet to impact oil shipments...

[damirUSBiH + 327]

In March, Saudi oil minister Khalid al Falih and others expressed interest in continuing with the production cut agreement for the rest of 2019.... Putin said that he does not want to see oil prices rise too high because it would harm Russian industrial development. Putin said that he is comfortable with prices at the current level. Where are oil prices heading in the second half of 2019...

[rainman + 263]

7 minutes ago, pinto said:

Sanctions are in direct link with oil market.  Oil sanctions imposed by the U.S. on Iran and Venezuela have significantly curtailed the amount of oil these countries exported....there are no compensations.

OPEC+ will definitely need to raise output in 2H given the Venezuela blackouts and Iran sanctions but the question is by how much?

[Pavel + 384]

High five for ....

 

[Gerard Remy + 10]

We all know what happened last year when the Saudis abandoned quotas to assist with the sanctions on Iran. The market crashed.after the price hovered around 80 dollars which is where they wanted it. I find it a little strange that they would want to increase out put and risk the same thing happening again. Oh well!

[Marina Schwarz + 1,576]

Of course they'll raise production if Russia says it's leaving either way. Those fields won't pump themselves.

[Oil_Engineer + 86]

18 hours ago, pinto said:

Sanctions are in direct link with oil market.  Oil sanctions imposed by the U.S. on Iran and Venezuela have significantly curtailed the amount of oil these countries exported....there are no compensations.

I think mismanagement and the recent economic collapse have had more to do with Venezuela's loss of market share than the sanctions ever did.

[William Edwards + 708]

I commend you for addressing the arithmetic of the supply/demand situation rather than the emotion of the situation.

Although you did not state it specifically, Pavel, the wording of your title suggests that a price increase is a necessary component of a "shortage". Since prices are set independently by (poorly informed) trading activity, and oil availability is set by demand of consumers for the products, a "shortage" is all that is necessary for OPEC (the swing producer) to increase production -- not a price change. History has shown that "shortage" can occur, temporarily, of course, with prices going up as well as down.

You may note that the decision on OPEC's level of production is dictated by the consumer, not the producer. The swing producer, OPEC, merely follows the leader. And the consumer is the leader. And price leads the consumer. The sequence of events is 1) traders announce the price, 2) consumption level adjusts to that price and 3) OPEC fills the hole if more supplies are needed or withdraws supplies if less supplies are needed. 

You say "Prices Increase, Shortages Mount". Is this not backwards? Should it not be "Prices Increase, Shortages disappear"?

Edited April 12, 2019 by William Edwards