To complete the reversal of the significant output cutbacks made at the start of the epidemic in 2020, the Organization of Petroleum Exporting Countries and its allies, (OPEC+) led by Saudi Arabia, are anticipated to propose another production boost slated for August.
According to an Opec+ Joint Technical Committee report, the group must handle rising inflation, high gas prices, and soaring demand that have cut this year’s supply surplus to 1 million barrels per day (JTC).
Some OPEC+ delegates anticipate that today’s ministerial meeting will approve the 648,000 b/d August quota increase that was tentatively outlined at the beginning of the month. The treks they originally intended to take from July to September will essentially move ahead by one month as a result.
But the cartel’s and its partners’ discussions will become more intricate in the coming weeks. They must evaluate the necessity to mobilize their depleting inventories of spare production capacity against the demand to reduce prices to $110 per barrel by filling the supply gap caused by sanctions on fellow member Russia.
One OPEC+ representative reportedly urged the group consider redistributing the August rise because numerous producers have had trouble fulfilling their mandates due to capacity issues, ongoing underfunding, insufficient infrastructure, and sabotage.
Following several months of decline, Nigeria’s crude oil production increased in May, climbing by 70,000 barrels per day and averaging 1.42 million bpd.
Based on Refinitiv Eikon flows data, the Reuters Crude Oil Production Survey published last month showed data from tanker trackers like Petro-Logistics as well as information from sources at oil firms, OPEC, and consultants.
The poll noted that OPEC output in May was above the increase anticipated under a pact with allies for the first time since February, surpassing Nigeria’s average output of 1.35 mbpd, citing stronger Saudi and Iraqi supply as well as a partial recovery in outage-hit Nigeria.
A similar plan would likely receive a muted response, according to delegates, though one added that if more producers reach their capacity, it might acquire more support.
Not all production growth will inevitably result in higher exports. The increase in 648,000 b/d comes as major producers, particularly Saudi Arabia, experience seasonally greater domestic power generation consumption needed for air conditioning.
The US president Joe Biden, who is scheduled to visit Saudi Arabia on July 15 and 16, has put pressure on OPEC+ to increase supply and reduce the burden on consumer households. The OPEC+ sources have emphasized Riyadh’s priority on not draining emergency spare global capacity to the point where prices spike, thus his trip may not necessarily result in increased Saudi output.
OPEC+ ministers are also keeping an eye on how Russian oil flows will settle down after western sanctions following Moscow’s invasion of Ukraine. Instead of putting new restrictions in place to remove supplies from the market, the G7 group of major world economies is working on a proposal to set a price cap on Russian oil exports to third parties.
Demand might increase even more. China, the greatest oil consumer in the world, is in the midst of a shaky comeback following stringent Covid-19 lockdowns in the second quarter. A number of government initiatives to safeguard households by lowering fuel taxes may potentially keep consumers’ appetites high.
The final choice may depend on US President Joe Biden’s visit to the kingdom later this month. Biden is softening his posture toward Riyadh diplomatically in an effort to garner its assistance in curbing inflation and isolating Moscow. Saudi Arabia is currently experiencing a remarkable revenue windfall of $1 billion per day.