OPEC+ reaffirms August oil production hike, leaves future output policy undecided
An increasingly stretched OPEC and its allies on June 30 reaffirmed plans for a nominal 648,000 b/d production rise in August, as questions continued to swirl about how much crude oil the group will be able and willing to pump in the months ahead.
Delegates told S&P Global Commodity Insights that ministers did not discuss any output plans beyond August, leaving that decision until their next meeting, which was scheduled for August 3.
Out of the entire 23-nation alliance, only Saudi Arabia and the UAE are able to increase production substantively, analysts say, squeezing a market still adjusting to western sanctions on Russian oil flows and outages in Libya, Kazakhstan and Ecuador, among others, with Dated Brent near $125/b.
Both have been heavily lobbied by the US and other consuming countries to aggressively increase supplies to the market, but have so far held fast to the OPEC+ agreement and its measured quota hikes.
US President Joe Biden is preparing to visit Saudi Arabia from July 15-16 for a summit with Gulf leaders where OPEC+ production policy was expected to be high on the agenda.
Platts Analytics expects the group will only be able to fulfill about 340,000 b/d of the August increase.
The OPEC+ alliance, which includes Russia, has been modestly raising its quotas each month, aiming to restore production to pre-pandemic levels by August, but many countries have not been able to keep up, due to deteriorating infrastructure, a lack of investment or political instability.
Combined, the group fell short of its May production targets by about 2.7 million b/d, according to its own assessments.
As a result, the oil producer alliance’s spare production capacity has steadily shrunk, down to 1.2 million b/d and concentrated in Saudi Arabia and the UAE, Platts Analytics estimates.
Under the OPEC+ deal, August quotas will remain in place through December, when the pact is scheduled to expire.
Besides Russia, disruptions in members Libya and Kazakhstan have tightened the market in recent months, while Angola and Nigeria have also seen steep declines in their output.
Outside the group, former OPEC+ member Ecuador has been wracked by protests that threaten to completely shut in its production.
Meanwhile, global oil demand has picked up with the summer driving season in full swing in the northern hemisphere and Chinese economic activity rising with the easing of lockdown restrictions.
A proposal by the G7 group of developed economies to impose ‘price caps’ on Russian oil exports could roil the market further.
G7 leaders say the move, yet to be finalized, is intended to deprive Moscow of windfall oil profits, while ensuring that Russian flows are not completely cut off.
But the price cap could undercut other producers’ exports, particularly in the key demand growth countries of China and India, where discounted Russian barrels are already replacing a chunk of volumes from Saudi Arabia and Iraq.