Oil prices spike sharply after OPEC fails to deliver

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The Organization of Petroleum Exporting Countries, OPEC, has agreed to raise oil production by around 1 million barrels per day from July 2018.

After an OPEC meeting in Vienna, Emirati Energy Minister Suhail al-Mazrouei said the cartel made a decision to fully comply with its existing production ceiling.

He noted that many market participants agree with increasing oil production and within the framework of the forthcoming meeting of OPEC+ there will be many willing to comment on the recommendation of the monitoring committee to increase oil production by 1 mln barrels per day in the framework of the OPEC + agreement.

OPEC will need to find a way to allow producers with spare capacity like Saudi to compensate for countries like Venezuela that do not, something Iran, for example, has opposed.

The production limits by the Organization of the Petroleum Exporting Countries and Russian Federation since 2016 have helped increase oil prices, with the benchmark USA crude contract hitting its highest level in more than three years in May.

Friday's decision means OPEC will observe the production level it agreed on in late 2016, when it cut output by 1.2 million barrels a day.

After OPEC's deal on Friday, Trump tweeted: "Hope OPEC will increase output substantially".

OPEC's deal to release more supply centers on the idea of returning to 100 percent compliance with existing, agreed cuts. The measure had helped rebalance the market in the past 18 months and lifted oil to around $75 per barrel from as low as $27 in 2016. Furthermore, 7 out of 12-member states saw their supply-flows fall more than the designated set levels by OPEC, bolstering the compliance rate above the set 1.2mbpd target to over 1.9mbpd.

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But unexpected outages in Venezuela, Libya and Angola have effectively brought supply cuts to around 2.8 million bpd in recent months.

The Cartel's historic approach to assessing market condition through the OECD may also to leave them open to further exogenous shocks from emerging markets (rising Chinese & Indian demand) and non-OPEC/unconventional outputs, such as US Shale oil.

The performance of the United Arab Emirates' oil minister and OPEC President Suhail Mazrouei was a master class in how to avoid a question.

OPEC sources also said Iran had demanded that US sanctions be mentioned in the group's post-meeting communiqué.

OPEC and non-OPEC producers will meet on Saturday to iron out details of the pact and then again in September to review the deal.

"Zanganeh can go back to his country and say "I won", because we are keeping the original agreement unchanged".

He also said OPEC could hold an extraordinary meeting before its next formal talks due on December 3 or adjust deliveries in September, when its monitoring committee meets, if global oil supply fell further because of sanctions on Iran.

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