After reaching $80/b on Brent crude last month and after seeing Opec’s production continuing to slide, not least due to sustained declines in Venezuela, the call for action has grown louder. Not least from Saudi Arabia and Russia, both of which have expressed concern about the potential damage of rising oil prices to global growth and demand.
The inability of most of the 14 Opec members to increase production, especially Iran (US sanctions), Iraq (lack of investment) and Venezuela (economic collapse) has raised the temperature ahead of the meeting. Geopolitical tensions are likely to resurface with US sanctions on Venezuela and soon Iran too being seen as providing Saudi Arabia an unfair advantage as it would gain market share from a production increase.
The IEA in its latest Oil Market Report for June kept global demand growth unchanged while increasing non-Opec supply a notch. They did, however, warn that a lack of action in terms of increasing production could leave a supply gap due to the ongoing collapse in Venezuelan and soon also Iranian production. The IEA estimates that the total loss of supply from these two countries could reach 1.5m b/d by end-2019. Against this they see other Middle East producers, led by Saudi Arabia, being able to increase production by 1.1m b/d.
The June oil market reports from the EIA, Opec and the IEA have kept average demand growth unchanged while moving non-Opec supply up a notch.