The historic OPEC NON-OPEC production agreement became known as OPEC plus one. Russia became that plus one as they joined OPEC and conspired with them to reduce production and ultimately raise production and reduce supply. As OPEC meets today it is OPEC minus one. Iran seems to be the lone holdout from a production deal that’s on paper.
The deal is supposed to be a one-million-barrel-day oil production increase, but because of the inability of many OPEC members to raise production, this will only add, according to OPEC sources, 600.000 barrels a day of extra oil. It appears that number is pretty much agreed on by most members, yet questions remain. Will Iran go along with a deal? Will 600,000 barrels be enough meet explosive global demand? If OPEC does this deal with the plus one, Russia may not be happy as its oil minster Alan Novak has called for a 1.5 million barrel a day increase.
The latest reports suggest that Iran will grudgingly go along with a deal. Iran has veto power, but the cartel will do whatever it takes to keep the credibility it has built. Iranian Oil Minister Bijan Zanganeh has blamed the United States for the pressure to increase production, but other big customers like India have called for higher output as the global supply versus supply production versus demand balance is at the tightest level we have seen in at least 11 years.
Saudi Arabia's Energy Minister, Khalid Al-Falih, seems to be on board with a deal but if you read between the lines you know that deep down inside, OPEC’s best efforts might be too little too late to offset a potential oil price spike. He not only warned that the world could face a supply deficit of up to 1.8 million a day in the second half of the year if OPEC plus one failed to act, but he also said that the Saudi spare production capacity was only a tiny two million barrels a day of oil. That means that one of the globes most prolific oil producers has only less than 2% of easy to bring to market oil in case of an emergency. Not very comforting with Libya fighting for oil fields and terminals and hurricane season going into high gear ahead.
This is a major concern because sources of crude coming from the private sector is not replacing global oil production decline rates. Shale oil is trying to do its part, but the lack of piling capacity trucks and truck drivers is going to force those producers to put the brake on production growth. We saw the increase in oil rig counts slow in recent weeks. We expect that will continue and we will see that in today’s Baker Hughes report. The International Energy Agency (IEA) warned last week of a "supply gap," with the potential for as many as 1.5 million barrels per day (bpd) being lost from Venezuelan and Iranian suppliers by the end of 2019.