Opec+ to stick with planned output hike

The group's next meeting would take place on August 3.

Reuters file photo
Reuters file photo

Issac John

Published: Fri 1 Jul 2022, 12:15 AM

Last updated: Fri 1 Jul 2022, 12:18 AM

Opec and its allies concluded a meeting on Thursday by deciding to stay the course with their earlier decision to boost their collective production by 648,000 barrels a day in August despite mounting pressure from the US to pump more to bring down soaring fuel prices hovering above $100 per barrel.

At the meeting held via videoconference, Opec+ confirmed that its quota for crude oil production will rise by 648,000 bpd in August, unchanged from the rise in July. The quota increases in July and August will mean that Opec+ will have technically unwound the large supply cut it implemented in the wake of the pandemic. In reality, though, it is unlikely Opec+ will be able to raise supply fast enough between now and August to hit the quota for that month.

The group's next meeting would take place on August 3. At the group’s last gathering on June 2, oil producers agreed to raise output by 648,000 barrels per day in both July and August, bringing forward the end of the historic output cuts implemented during the throes of the coronavirus pandemic. The decision was welcomed by US President Joe Biden’s administration at the time, which has repeatedly pushed for the group to pump more.

Opec+ has been slowly returning the nearly 10 million barrels per day it agreed to pull from the market in April 2020. In recent months, production has risen between 400,000 and 432,000 barrels per day each month.

Oil prices slipped on Thursday afternoon amid concerns about global supply tightness. It comes amid the suspension of Libyan oil exports from key ports and a fall in output in Ecuador due to ongoing protests.

International benchmark Brent crude futures was last seen trading 0.5 per cent lower at $115.74 a barrel, while US West Texas Intermediate futures traded 0.8 per cent lower at $108.93.

Analysts and energy executives questioned whether Opec+ members had as much spare capacity as some market participants hoped.

President Biden, who is planning a trip to Saudi Arabia in July, has been under pressure to do whatever he can to reduce oil prices, although many experts say there's little he can do. Opec and its allies, on the other hand, could help lower prices by increasing production in theory. But that doesn't mean it will, even as Biden has urged the group to do so.

Production has fallen substantially behind Opec+ quotas. Angola and Nigeria have long standing shortfalls, among others, and questions have arisen about how much spare production capacity Saudi Arabia and the UAE have in reserve.

There's also little incentive for Opec+ countries to boost production even if they are able, said Heather Heldman, managing partner at Luminae Group. At the end of the day, they're worried about their economic bottom line, not the political fortune of a foreign leader, Heldman said.

Russia's war in Ukraine has contributed to high oil prices fueling inflation around the world. At a summit of the Group of Seven leading economies this week, the US pushed for a price cap on Russian oil imports to try to blunt the price spikes and reduce money from oil sales flowing into the Kremlin's war chest.

As of May, surplus production capacity in non-Opec countries decreased by 80 per cent compared with 2021, according to the US Energy Information Administration. Surplus capacity is oil production that can be brought online within 30 days and sustained for at least 90 days. In 2021, about 60 per cent of the surplus production capacity was in Russia, but much of that was eliminated as of May 2022 due to sanctions, the agency said.

“We are seeing an ever tighter oil and gas market appearing — and we are feeling that right now. I think it is probably fair to say there is a little bit of a fear factor in the oil price at the moment but by and large, it is also true that there is limited spare capacity,” Shell CEO Ben van Beurden said on Wednesday at a media roundtable ahead of the Opec+ meeting. — issacjohn@khaleejtimes.com

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