OPEC enters meeting that could set direction of oil prices

Officials from major oil-producing nations are expected to agree this week to boost output, but just how much they will open the spigot - and the effect on oil prices - remain wild cards.

Ministers from the Organization of the Petroleum Exporting Countries, OPEC, and non-OPEC nations, led by Russia, are meeting Friday and Saturday in Vienna, and it could be a difficult and uncomfortable gathering. The cartel's largest producer, Saudi Arabia, wants higher prices but hears President Donald Trump, leader of its most important ally, lobbying openly for lower prices.

Analysts expect the group will consider an increase of somewhere around one million barrels a day. That may seem insignificant in a global supply of 98 million barrels a day, but critically it would reverse reductions that the same countries approved in late 2016, helping push crude higher by more than 50 per cent.

Benchmark US crude hit its highest level in more than three years in May, but US and international prices have eased since then in anticipation that OPEC will approve more drilling. On Wednesday, US crude closed at US$65.74 a barrel, down from a peak of nearly US$73 last month, and Brent crude, the international standard, closed at US$74.61, down from US$80.

Any production increase would help offset a decline in output by Venezuela, an OPEC member consumed by economic and political crises, and the prospect of reduced exports from Iran - OPEC's third-biggest producer - now that the United States is in the process of reimposing sanctions over that country's nuclear programme.

Oil demand has been rising faster than expected, pushing prices higher despite a big increase in US oil output. The International Energy Agency, which represents consuming nations, expects demand to grow more slowly in the second half of this year partly due to rising oil prices but still 1.35 million barrels a day higher than the same period in 2017.

Some analysts believe that Saudi Arabia needs a Brent price closer to US$90 to cover its domestic spending, but is feeling pressure from the United States to head off rising prices by boosting output. Russia may be happy to pump more oil and settle for prices in the US$60s, according to Tamar Essner, chief energy analyst for Nasdaq.

Essner is betting that the Vienna meeting will yield an agreement to boost production by 500,000 to 800,000 barrels a day, far below the 1.5 million barrel figure floated recently by Russia's oil minister, Alexander Novak.

Phil Flynn, an oil analyst with The Price Futures Group, expects a deal for around an extra one million barrels a day. And he thinks prices will rise anyway.

"The market is going to say, 'That isn't enough,' and 'How quickly is it going to come online?' That's when we're really going to resume the price increases," Flynn said. He expects US$80 crude by year end, US$100 by 2020.

- AP