DUBAI: Opec could raise oil output from July if Venezuelan and Iranian supply drops further and prices keep rallying, because extending production cuts with Russia and other allies could overtighten the market, sources familiar with the matter said.

Venezuelan crude production has dropped below 1 million barrels per day (bpd) because of US sanctions. Iranian supply could fall further after May if, as many expect, Washington tightens its sanctions against Tehran.

The combined supply cuts have helped to drive a 32 per cent rally in crude prices this year to nearly $72 a barrel, prompting pressure from US President Donald Trump for Opec to ease its market-supporting efforts. Opec has been saying the curbs must remain, but that stance is now softening.

“If there was a big drop in supply and oil went up to $85, that’s something we don’t want to see, so we may have to increase output,” one Opec source said.

The market outlook remains unclear and much depends on how far Washington tightens the screw on Iran and Venezuela before Opec’s June meeting, the source added.

The Organisation of the Petroleum Exporting Countries, Russia and other producers, an alliance known as Opec+, are reducing output by 1.2 million bpd from Jan 1 for six months. They meet on June 25-26 to decide whether to extend the pact.

A Russian official indicated this week that Moscow wanted to pump more, in comments that a Russian energy source said were aimed at preparing the market for the end of output curbs.

However, President Vladimir Putin seemingly softened that stance.

A second Opec source said producers “might” pump more if output dropped further from Iran and Venezuela and oil went above $80 by June. If this happened, any increase would be smaller than 1.2mbpd, the source said.

A third Opec source raised the prospect of amending the deal in June while still extending the pact, citing declines in Iranian and Venezuelan production plus volatility in Libyan supply. “I expect an extension for a further period, but maybe there will be some adjustment,” this source said.

In 2018 Opec+ decided to increase output at its mid-year meeting, only to return to production cuts in 2019.

Published in Dawn, April 12th, 2019