By Alex Lawler
Russia and Saudi Arabia are pushing Opec and its allies to raise oil output steeply from July to meet growing demand and cover supply outages in Venezuela and Libya despite opposition from several members of the producer group including Iran.
“Oil demand usually grows at the steepest pace in the third quarter. We could face a deficit if we don’t take measures,” Russian Energy Minister Alexander Novak said. “In our view, this could lead to market overheating.”
Novak said Russia wanted Opec and non-Opec countries to raise output by 1.5 million barrels per day, effectively wiping out existing production cuts of 1.8 million barrels per day that have helped rebalance the market in the past 18 months and lifted oil prices to $75 per barrel from a low of $27 in 2016.
Opec meets on Friday to decide output policy amid calls from major consumers such as the US and China to cool down oil prices and support the global economy by producing more crude.
Opec’s de facto leader, Saudi Arabia, and non-member Russia have proposed gradually relaxing production cuts which have been in place since the start of 2017. Opec members Iran, Iraq, Venezuela and Algeria have opposed such a move.
Three Opec sources told Reuters that a technical panel (the organisation’s economic commission) met on Monday to review the market outlook and forecast strong global demand for oil during the rest of 2018.
“If Opec and its allies continue to produce at May levels then the market could be in deficit for the next six months,” a source said.
Some countries including Algeria, Iran and Venezuela said they still opposed an output increase. Demand growth has surprised market watchers on the upside in the past two years, with annual rises exceeding 1.5%. Global oil consumption is expected to hit 100 million barrels per day next year.
Novak said if a decision were taken this week to raise output, Opec and its allies could meet again in September to review the impact and fine-tune production policy.