Oil production set to go up, prices expected to drop

For a year and a half now Opec and oil-producing nations like Russia have doggedly stuck to the agreed oil supply cuts that were introduced at the end of 2016.

Until now.

Supply On The Up

News has emerged that Russia and Saudi Arabia are looking at the idea of upping production by an extra 1 million barrels per day.

This move is more of a game-changer than many may think and is a startling reversal for the oil-producing nations and their allies who have been reducing oil supplies steadily since the start of last year.

The belief is that increased production will make up for the lost supplies that Venezuela once provided, and will counter sanctions that the US are pushing to be placed on Iran, who is the 3rd most valuable Opec provider.

Trump Factor

Many will consider this move to be a success for US President Donald Trump, who has been vociferous in his criticism of Opec as rising oil prices have seen US consumers suffer at the pump.

Only last month the outspoken President attacked Opec, claiming they were artificially boosting prices, and he has not been shy in pressing US allies in the Gulf, especially Saudi Arabia, to push forward with increases in production that would see prices drop.

Within hours of the news that production would be upped, we have seen oil prices drop by more than 3%, to almost $76 a barrel.

Iran Issue

The key player in this situation is undoubtedly the number 1 producer of oil on the planet, Saudi Arabia, who have been keen to see the US take a harder line with Iran, and have clearly taken on board the US President’s concerns over oil prices.

They know that coupled with the political situation in Venezuela that has seen production slow considerably, sanctions on Iran would also be a blow to oil production, causing the prices to rise even further.

The meeting which should see the increase in oil production officially announced takes place in Vienna on June 22nd, with energy ministers meeting to discuss the matter.

Whatever is announced following that meeting will play a huge part in how the oil market plays out over the rest of 2018 and beyond.

Open Chart in New Window