It is unlikely that OPEC will accept an increase in official production in Algeria, but the pressure is mounting

DUBAI (Reuters) – OPEC and its allies are unlikely to agree to an official increase in crude production when they meet in Algeria this weekend, although pressure is mounting on major producers to prevent price rises oil sources said.

OPEC spokesman in Saudi Arabia fears that any increase in oil prices related to sanctions will prompt further criticism of US President Donald Trump, but worries about lack of oil capacity available to compensate for shortages.

The kingdom is caught between the hammer and the anvil, seeking to prevent prices from exceeding $ 80 a barrel before the US congressional elections, while dismissing doubts about its ability to offset a drop in the price of oil. Iranian offer.

"It's complicated, Saudi Arabia has to balance oil supply and demand, and it has to balance oil prices so that they do not rise too much before the US elections," said a spokeswoman. source of OPEC.

"It's also political because the Saudis do not want to pump too much oil while the Iranians complain to OPEC that it (Saudi Arabia) is gaining market share (in Iran). They also do not want oil prices to go down too much.

Trump targeted OPEC on Thursday, writing on Twitter: "We are protecting the countries of the Middle East, they would not be safe for long without us, and yet they continue to push for oil prices. higher and higher! We will remember. The monopoly of OPEC must bring down prices now!

Under pressure from the President of the United States, the Organization of the Petroleum Exporting Countries, Russia and other allies agreed in June to boost production by 1 million barrels a day, after having participated in a reduction agreement of the offer since 2017.

The so-called OPEC + coalition is meeting in Algeria on Sunday to discuss how to allocate the one million bpd increase as part of its quota.

According to OPEC sources, there is no immediate plan for official action, as such an initiative would force OPEC to hold what it calls an extraordinary meeting, which is not on the table.

The weekend meeting will discuss how to share the previously agreed production increase and consider whether the market needs more oil to offset the loss of the Iranian supply and a decline of Venezuelan production.

Two sources stated that the meeting could result in a recommendation on the division of the increase, with most participating countries represented.

"There are no proposals for an extraordinary meeting in Algeria," said another source from OPEC.

The source added that the joint ministerial committee of OPEC and non-OPEC countries known as JMMC, which meets Sunday in Algiers, may still recommend to the expanded coalition a further increase in production if necessary.

A separate source from OPEC said, "To make a decision, you must have all the ministers. Not all ministers are present but most delegations will be represented.

Who can increase production?

US sanctions on Iranian oil exports come into effect in November, with the country's supply already at its lowest level in two years. The decline in Venezuelan production and unplanned shutdowns elsewhere will also help maintain a balance between supply and demand.

Fears over supply shortages have driven crude oil prices higher in recent weeks and the international Brent LCoC1 benchmark was trading at over $ 79 a barrel on Thursday.

Washington wants to cut Iranian oil exports to zero by November and pushes Saudi Arabia, other OPEC members and Russia to pump more to fill the deficit.

OPEC and industry sources told Reuters that Chinese, Indian and Asian refiners were interviewing producers in the Middle East such as Saudi Arabia, Iraq, the United Arab Emirates and Kuwait for more than cargoes.

While some producers face supply restrictions due to infrastructure constraints or a desire not to be considered a flood of the market, others are increasing exports to Asia, indicated the sources.

Although OPEC output has risen since July, Saudi Arabia has added less crude than it originally indicated.

The Saudi authorities estimate that the demand for oil is insufficient to justify an increase in Saudi production well beyond the 400,000 barrels per day it has pumped above its target of 10 million barrels per day.

But this has raised doubts about Riyadh's ability to rapidly expand production to reach a sustainable maximum capacity of 12 million bpd, according to sources.

Although Saudi Arabia has never tested such high levels, it said it pumped 10.7 to 10.8 million barrels a day in the past.

According to industrial sources close to Saudi oil plans, the energy giant Aramco could quickly increase its production to 11 million barrels a day, but the achievement of 12 million barrels a day could take up to six months.

Reserve capacity refers to the ability of a producer to accelerate production in a relatively short time. Much of it is located in the Middle East.

OPEC Secretary General Mohammad Barkindo warned this week against underinvestment in the global oil industry.

"We have seen a contraction in the level of investment over the past two years in response to the impact of the crisis," Barkindo said in an interview with Reuters TV.

"We hope that with the gradual return of confidence in the market, we will see a higher level of investment in the sector, which will ensure that at some point a certain level of reserve capacity buffer against volatility. "