Oil falls as OPEC nears deal to raise production

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Saudi Arabia and Russian Federation have been pushing for the increase but a hard meeting was expected today after Iranian Oil Minister Bijan Zanganeh said on Thursday he did not think an agreement could be reached.

"We are making good progress", said United Arab Emirates Energy Minister Suhail Al Mazrouei, who also now holds the position of OPEC president.

The real increase will be smaller because several countries that recently underproduced oil will struggle to return to full quotas while other producers will not be allowed to fill the gap, OPEC sources have said.

The talks were meant to lay the groundwork for Friday's gathering of the 14-nation Organization of Petroleum Exporting Countries (OPEC), when the cartel will discuss easing a supply-cut deal with 10 partner countries that has cleared a global oil supply glut and pushed crude prices to multi-year highs.

There is concern among consuming nations and some OPEC members that a shortage and rising oil prices could cripple the global economy.

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"We want to prevent the shortage and the squeeze that we saw in 2007-2008", Falih said.

Iranian oil minister Bijan Namdar Zanganeh said as the group met Friday that "we are not here to receive instruction from President Trump and apply it and implement it".

"If China's import demand dries up, more than 300,000 barrels per day of US crude will have to find a new destination", energy consultancy FGE said, adding that "this will certainly depress US Gulf Coast prices".

"Yergin said Saudi Arabia and the United Arab Emirates support the current, tougher US policy toward Iran, Saudi Arabia's rival for influence in the region, and so will want to support Trump's call for lower prices".

Oil prices have spiked by as much as 20% this year, in part because OPEC has produced even less than was foreseen under the 2016 agreement, which was supposed to reduce supply by 1.8 million barrels per day.

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But in practice it would mean a much smaller boost of less than a 10th of that amount, effectively from Saudi Arabia. Iranian Oil Minister Bijan Zanganeh said on Wednesday that an OPEC output increase could total around 460,000 bpd.

He said that the world could face a supply deficit of up to 1.8 million barrels a day in the second half of the year, and maintained that it is OPEC's responsibility to address that imbalance.

Oil prices rose in early Asian trading on Wednesday, supported by a drop in USA commercial crude inventories reported by the American Petroleum Institute (API).

Reuters, quoting unnamed OPEC sources, said Iran had demanded that U.S. sanctions be mentioned in the group's post-meeting communiqué.

He said the exact mechanics of how the proposal should be carried out will be decided among OPEC members at their meeting on June 22.

Further, Russia and Saudi Arabia have been calling for an output hike since last few weeks. Mr Trump has also increased pressure on OPEC to raise production ahead of mid-term elections.

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Also supporting prices was a drop in Libyan supplies due to the collapse of an estimated 400,000-barrel storage tank.

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