Brent crude gained in London as OPEC ministers were said to agree upon a deal in principle too boost production.
Futures gained as much as 3 percent, reversing a slump on Thursday when it appeared that Iran might walk away from a deal, encouraging rival producers including Saudi Arabia to go it alone. The group was said to agree a principle for a 600,000 barrel a day output hike, that would be a nominal 1 million barrels a day, according to a delegate. Brent crude prices set a new intraday high after the news.
“It’s a relatively modest increase, but I think it’s also important that it’s a change from the previous strategy,” Petromatrix GmbH Managing Director Olivier Jakob said by phone. “The initial increase is not necessarily the last increase, it does open the door to a continued increase.”
It emerged late Thursday that a committee of OPEC and allied producers had backed raising oil production by 1 million barrels a day. Effectively, though, the increase would be only about 600,000 barrels a day because several countries aren’t in a position to pump more if they want to. There were Russian proposals earlier this week to boost by 1.5 million a day.
Further details of the agreement Friday weren’t immediately clear, though the deal would mean a return to 100 percent compliance with production quotas, according to a delegate at the Vienna meeting. OPEC has overcomplied with the original output accord, in place since the start of 2017, in part because an economic crisis in Venezuela has led to a collapse in production there.
Brent crude for August settlement rose as much as $2.19, or 3 percent, to $75.24 a barrel on the London-based ICE Futures Europe exchange and traded at $75.06 at 8:43 a.m. New York time. Prices slid 2.3 percent on Thursday.
WTI crude for August delivery rose as much as 2.64 percent to $67.27 a barrel on the New York Mercantile Exchange. The U.S. benchmark oil traded at a discount of $7.87 to Brent.
Before the ministers’ meeting, comments from Saudi Arabia, Iran, Iraq and others suggested that they were inching toward a compromise. Iranian Oil Minister Bijan Namdar Zanganeh said language for a deal was being drafted.
Iran, which faces imminent U.S. sanctions that threaten to curb the nation’s exports, earlier in the week opposed the idea of even a modest increase in production. Saudi Arabia has sought to boost production, with Energy Minister Khalid Al-Falih on Thursday saying his nation was siding with consumers.
“The risk to the price of oil from failure probably helped bring the deal home,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S. “We should still remember that the production deal is still alive and kicking. They’re basically preempting a shortfall to keep the price stable.”
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