Oil up nearly 3 percent as OPEC agrees to raise output

An oil pumpjack operates in the drive-thru area of a McDonald's in Bradford Pennsylvania

An oil pumpjack operates in the drive-thru area of a McDonald's in Bradford Pennsylvania

The Organization of the Petroleum Exporting Countries, meeting in Vienna, agreed on Friday to boost output from July after its de facto leader Saudi Arabia persuaded Iran to cooperate in efforts to reduce the crude price and avoid a supply shortage.

It's a dramatic policy change for the organisation known as OPEC.

On Saturday, non-OPEC oil producers agreed to participate in the pact but a communique issued after their talks with the Vienna-based group provided no concrete numbers amid deep disagreements between OPEC arch-rivals Saudi Arabia and Iran.

Al Jazeera's Paul Brennan explains why.

In late-June, Russia and Saudi-Arabia led the push to increase the production by around 600,000 barrels per day (bpd).

However, Saudi Energy Minister Khalid al-Falih convinced his Iranian peer Bijan Zanganeh to support the increase just hours before Friday's OPEC meeting.

And despite the push for wider production growth of 1 million barrels per day (bpd), actual output increases of around 600,000bpd are being forecasted due to the fact other OPEC member states can not grow their supplies. Iran said the real increase could amount to as little as 500,000 bpd.

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World's largest oil consumers - US, China, and India - wanted the rise in supply to bring the cost down. He was repeatedly asked whether countries with spare production capacity - mainly Saudi Arabia - would be able to make up the volumes that others can't produce.

However, he indicated that some countries could pick up production if others lag. Due to the global anticipation of the Cartel's voluntary supply withdraws - aimed at further sustaining the technical price recovery - prices have steadily continued to trend higher since the 2014 Brent Crude oil contract plunged.

OPEC's deal to release more supply centers on the idea of returning to 100 percent compliance with existing, agreed cuts.

European carmakers' shares fell sharply after U.S. President Donald Trump threatened to impose a 20-per-cent tariff on all European Union-assembled cars coming into the United States, if EU "tariffs and trade barriers" are not removed. The measure had helped rebalance the market in the past 18 months and lifted oil LCOc1 to around $75 per barrel from as low as $27 in 2016.

Russian Energy Minister Alexander Novak said on Saturday he was happy with the decision even though he had previously pushed OPEC and non-OPEC to raise output by as much as 1.5 million bpd. The figure has been inflated by a plunge in supplies from almost bankrupt Venezuela.

Falih has warned the world could face a supply deficit of up to 1.8 million bpd in the second half of 2018.

Iran's Zanganeh has accused Trump of trying to politicise OPEC and said it was USA sanctions on Iran and Venezuela that had helped push up prices.

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