The Opec+ super group of oil producers agreed to raise September production by 100,000 barrels per day.
The group is reassessing production as price volatility triggered by fears of a recession continues. Higher prices could suppress crude demand amid Russia-Ukraine conflict-driven supply constraints.
During an online meeting on Wednesday, the group decided to bring additional crude to the market. The Opec+ group agreed to increase its July and August crude production by about 50 percent to 648,000 BPD in June. They have restored the group’s production of 5.8 million BPD reduced during the Covid-19 pandemic.
“The meeting noted the dynamic and rapidly changing oil market fundamentals, required continuous assessment of market conditions,” the Opec statement said.
“The severely limited availability of excess capacity necessitates utilizing it with great caution in response to severe supply disruptions.”
Oil prices have maintained their volatility during recent weeks amid fears of a slump in demand. The situation has pulled prices down from recent highs of more than $123 per barrel.
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Brent was almost at $140 per barrel in March at the start of the Russia-Ukraine conflict. It dropped most of its gains and hovered below the $100 per barrel mark on Monday. But despite the recent slide, crude is still around 30 percent higher than it was at the start of the year.
Crude futures rallied, erasing losses on Wednesday after the announcement of an output boost of only 100,000 BPD.
Brent, the benchmark for two-thirds of the international oil markets, was trading 0.22 percent higher at $100.80 per barrel. West Texas Intermediate, the gauge for US crude, rose 0.12 percent to $94.53 a barrel.
The producers’ group is unlikely to produce the agreed target with members struggling with individual capacity constraints for years.
Suhail Al Mazrouei, UAE Minister of Energy and Infrastructure, said in June that Opec+ was running 2.6 million BPD short of its production target.
On Wednesday, an Opec communique underscored its “particular concern” that “insufficient investment will impact on time supply to meet growing demand beyond 2023”.
Global oil demand will increase next year, indicating greater pressure on an already tight market. Opec producers must pump almost 1 million more BPD in 2023.
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Only Saudi Arabia and the UAE have built a significant capacity to boost production. According to the International Energy Agency, they have a combined spare oil capacity of more than 2 million BPD. However, both countries are already close to the level where they can produce at a sustained pace.
Saudi Arabia and Russia lead the OPEC + and have channeled the crude markets since 2016. To achieve a historic reduction of 9.7 million BPD between May 2020 and July 2021.
However, Ukraine’s war has pressured the alliance to raise production. The group has resisted calls for increased oil production to control oil prices that have yielded inflation around the globe and are at a 40-year high in the US.
The Opec+ alliance maintains that fundamentals were not causing the volatility in oil markets and that higher oil prices resulted from geopolitical developments.
However, US President Joe Biden, while visiting Saudi Arabia last month, said he expects the group to take “further steps” to boost output. US officials have since signaled confidence that Riyadh will push for an increase in crude production.
In recent months, growing uncertainty about the global economic outlook and the continuation of the Russia-Ukraine conflict has added to both demand and supply concerns.
The International Monetary Fund has predicted global growth of 3.2 percent in 2022 and 2.9 percent in 2023. The growth rate was 6.1 percent last year.
The fund warned additional risks could decline global growth to 2.6 percent and 2 percent in 2022 and 2023, respectively—the worst growth outcome since 1970.
According to Emirates NBD, the path for crude markets is less defined in the wake of the murky growth picture.
The current Opec+ production adjustments end in September. Afterward, group members can opt for their output in line with their view of the market situation.
Opec+, however, did not say by how much it plans to increase production each month beyond September.
Analysts, meanwhile, expect the supergroup to stay together beyond this year and continue to coordinate on output levels.
Abu Dhabi Commercial Bank expects the target output to remain “steady until end-2022” at about 800,000 BPD.
Opec+ is likely to extend the current agreement that ends in December 2022 by another six to 12 months.
Since the beginning of the Opec+ deal, oil prices have rallied more than 330 percent. From $25 per barrel for Brent futures at the end of April 2020 to $110 per barrel at the end of July 2022, Mr. Bell said.