Oil prices rise more than 1% amid Opec output meeting

London — Oil prices rose more than 1% on Friday as oil cartel Opec struggled to agree on a deal to increase output to compensate for losses in production at a time of rising global demand.

Benchmark Brent crude was up 75c a barrel at $73.80 by 8am GMT. US light crude was 60c higher at $66.14.

Opec is meeting in Vienna, with non-Opec oil producers, to discuss output policy. On Friday, the cartel tried to overcome Iranian opposition to a preliminary agreement to boost production by a theoretical 1-million barrels per day (bpd) — although the actual increase would be smaller as several countries are unable to raise output.

Following a night of drama in Vienna on Thursday, the joint ministerial monitoring committee, which includes Russia and Saudi Arabia, recommended a supply boost despite Bijan Namdar Zanganeh, the Iranian oil minister, walking out of the meeting and predicting Opec would not convince him to back an increase. He met his Saudi counterpart for private talks on Friday morning before the full Opec meeting, said one delegate.

Iran could wield a veto over any formal deal, but such a move wouldn’t necessarily prevent additional oil coming onto the market. Riyadh could seek to assemble a coalition of countries ready to pump more within their existing agreement, act unilaterally to boost output, or abandon the 2016 cuts deal entirely.

Analysts expect Opec to announce an increase in production of 500,000 to 600,000 bpd, which would help ease tightness in the oil market but would not be enough to create a glut.

“Any deviation from this figure is likely to generate a market response,” said Warren Patterson, commodities strategist at Dutch bank ING in Amsterdam. “A more relaxed policy will push Brent towards $70 a barrel, while restrictive measures will support crude oil back towards $80.”

Oil prices have been on a roller-coaster ride over the past few years, with the international marker, Brent, trading above $100 a barrel for several years until 2014, dropping to almost $26 in 2016, then recovering to more than $80 last month.

The most recent price rally followed an Opec decision to restrict supply in an effort to drain global inventories. The group started withholding supply in 2017 and this year, amid strong demand, the market tightened significantly, triggering calls by consumers for higher supply.

Falling production in Venezuela and Libya, as well as the risk of lower output from Iran as a result of US sanctions, have all increased market worries of a supply shortage. Another big uncertainty for oil is the escalating dispute between the US and its trading partners, which could hit US crude oil exports to China.

Asian shares hit a six-month low on Friday as tariffs and the US-China trade battle start taking their toll. If a 25% duty on US crude imports is implemented by Beijing, American oil would become uncompetitive in China, forcing it to seek buyers elsewhere.

Chinese buyers are already starting to scale back orders, with a drop in supplies expected from September. Energy consultancy FGE said, “If China’s import demand dries up, more than 300,000 bpd of US crude will have to find a new destination.”

Reuters, Bloomberg