Monday’s announcement by OPEC+ indicated that it would continue to adhere to the existing pact to increase oil production gradually. This has sent crude prices to new highs of three years and added inflationary pressures to consuming countries, which could lead to a slowdown in economic recovery.
After oil prices rose more than 50% this past year, the Organization of the Petroleum Exporting Countries (Russia) and its allies, known collectively as OPEC+, were faced with demands for additional supplies by big consumers such as the United States of America and India.
OPEC+ has “confirmed its production adjustment plan”, which it had previously agreed would see 400,000 barrels per daily (bpd), added in November, according to a statement released after online ministerial discussions.
Brent crude oil surged to above $81 per barrel after the announcement that the group would continue with its plan for incremental additional production.
“We will monitor the situation as we know that demand falls in the fourth quarter, and our plans to increase (output are uneven”),” Russian Deputy Prime Minister Alexander Novak stated.
Reuters was told by an OPEC+ source that they had been under pressure to increase production speedily before Monday’s ministerial meetings. However, the source added: “We are afraid of the fourth wave corona. No one wants to make big moves.”
In July, the group agreed to increase output by 400,000 bpd per month until April 2022. The group also committed to phasing out 5.8 million BPD of production cuts that had been in place during the worst pandemic.
While demand has rebounded quickly, supply has been disrupted by factors such as hurricanes that have hit U.S. production and low levels of investment in the industry during the heights of the pandemic when there was little to no demand.
Last week, a senior U.S. aide met with the Saudi Crown Prince Mohammed bin Salman in Saudi Arabia to discuss a variety of issues. He stated that oil was “of concern”. India, another major oil consumer, is pushing for more supply.
“For the moment, most producing members are comfortable with a $80 per barrel Brent price. But there is a risk that buyers like the U.S. or China will openly call for lower energy prices,” Rystad Energy, consultancy, wrote before ministers met.
Analysts stated that they expect uncertainty over the impact of coronavirus variants on-demand to influence OPEC+ decision making. This could lead to economic disruption.
