OPEC agreed to a modest lift in output of 1,000,000 barrels per day (B/D) at the 7th OPEC International Seminar in Vienna. Further inspection reveals that the actual increase will be approximately 700,000 (B/D) due to capacity constraints, as some member countries don't have the means to produce more oil. Traders will note that the delta of 300,000 (B/D) will be significant in real terms.
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.
OPEC speculation and a strong dollar on trade war fears is providing highs and lows on the crude oil market. Oil was rallying on a big 5.9 million barrels draw in inventory, and a record-breaking week for U.S. refiners as they ran a seasonal record 17.7 million barrels a day crude oil last week according to Energy Information Administration data.
The U.S. dollar has jumped to its strongest level in nearly a year, raising questions about how a strong greenback could act as a drag on debt and oil demand in much of the world. The U.S. Federal Reserve announced another rate hike a few days ago, which helped edge up the dollar to a new high for the year.
It looks like it is going to be a showdown at the OPEC coral as Iran leads the coalition of the not so willing to raise oil production along with Iraq and Venezuela. The coalition of the willing lead by Saudi Arabia and the so-called Plus 1, Non-OPEC Russia seems as committed as ever to raising oil output. Russian Energy Minister Alexander Novak Is pushing for a 1.5-million-barrel increase in output, which is partly a negotiating tactic and partly a concern that the market might become undersupplied in the third quarter.
The intensifying trade tensions between the United States and China simply added to market jitters, consequently weighing heavily on emerging markets. While the prospect of higher U.S. interest rates is likely to stimulate fears of capital outflows from emerging markets, global trade concerns present a major risk.
The anticipation of a drastic shift in OPEC’s mindset is quite puzzling to most when you consider that the previous theme heading into meetings was how much production output could possibly be cut from the market. This focus has suddenly been replaced with anxiety over how much supply could potentially be added back into the market.
Risk-off sentiment is sweeping through global markets after U.S. President Trump fired back at China last night. He instructed the U.S trade representative to identify $200 billion worth of Chinese goods to impose a 10% tariff. Crude oil recovered very well yesterday as speculation mounted that OPEC will only raise production 300,000 to 600,000 bpd. However, this morning, crude oil is a casualty of the risk-off, trade war fears.
Trade war fears are escalating after President Donald Trump hit back against the Chinese by asking his administration to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10%. This came after markets started to shake off concerns about the United States imposing a 25% tariff on up to $50 billion of Chinese products.
On Friday, the White House announced 25% tariffs on $50 billion worth of Chinese goods. As promised, China quickly retaliated imposing 25% tariffs on $50 billion worth of U.S goods. They plan to introduce these tariffs in two phases.