Opec’s announcement of a 1million barrel production boost is just a “token gesture”, according to analysts Cantor Fitzgerald.
The boost equates to around one percent of global oil supply, however it is widely seen thought that only around 600,000barrels are achievable from that.
It comes amid pressure to reduce fuel costs, but the US wants Opec to increase the oil price.
If just 600,000 is achievable, it is far lower than the 1.8million-barrel production cut agreed with Russia in 2016.
With descent from countries such as Iran, which stormed out of the meeting in Vienna, Jack Allardyce from Cantor said the result is largely unsurprising, and doesn’t expect and major reaction.
“It’s reasonably moderate, it feels like a bit of a damp squib. The major consensus seems to be that what’s available from that is 600,000 barrels.
That feels like a token gesture and that’s not particularly surprising given the level of descent with countires like Iran.
“It was always going to be a lower number. One million seems fairly well expected.
“The pantomime with Iran storming out of the meeting seems to be a bit of political grandstanding.”
Opec did not reveal where the production increase will come from, however the analysts believe that Russia and de-facto Opec leader Saudi Arabia are the only ones with the capacity for an immediate boost.
Meanwhile, Saudi Arabia will be looking for “a good price” when it floats 5% of state-owned Saudi Aramco later this year, meaning they want to keep the price at a similar level.
Ashley Kelty, who is also from Cantor, said: “I think it will be interesting to see Opec give an indication of what countries are integral to the increase or not. It seems this is an opportunity for Russia and Saudi Arabia to increase their market share.
“The Saudis are keen to get as high a price for Aramco as possible but they don’t want it to look like they are trying to appease Trump’s calls for a higher oil price so they are trying to keep it level.
“The increase will predominantly come from Russia or Saudi Arabia, they are the only ones with the capacity to increase in the short-term. Iraq also possibly could but it will take some time for them.
“The issue is how quickly Venezuela will be able to stop their decline, if at all. It is possible that the Chinese may just buy Iranian oil to displace US imports and just to drive Trump nuts.”
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