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The OPEC today agreed to increase output by 1mb/d to reduce ‘over compliance‘ with the current output agreement. According to analysts at Danske Bank it remains unclear what OPEC will do after the current deal expires at the end of the year.

Key Quotes:

“The Organisation of Petroleum Exporting Countries (OPEC) today agreed to lift output by 1mb/d effective from 1 July. The aim of the deal is to return total compliance to the current output agreement to 100%. Compliance has been well above 100% this year since some
countries, notably Venezuela, have seen a drop in production. OPEC is set to hold the next biannual meeting on 3 December.”

“Since November 2016, OPEC has kept production lower to support a tighter oil market balance, reduce global oil inventories and support higher oil prices. This year oil prices have rallied to the highest level since 2014 in part because OPEC has become ‘over compliant’ with the production cuts, due notably to falling production in Venezuela at a
time when demand has been on the rise on the back of higher global economic activity.”

“This development paved the way for a deal to return supply to the market and reduce ‘over compliance‘. Essentially, OPEC is raising production to maintain the current output agreement, which runs until end of the year.”

“It remains unclear what OPEC will do when the current deal expires at the end of the year. A decision on this will likely be made on 3 December. The deal today does not affect our current forecast for Brent to average USD72/bbl in H2 and USD73/bbl in 2019.”