Oil prices spike as OPEC+ favours gradual production increase

As the world debates the end of fossil fuels at COP26 in Glasgow, the Organisation of the Petroleum Exporting Countries (OPEC) and its allies led by Russia has agreed to stick to their current pace of gradual production.

After a brief meeting on Thursday, energy ministers from OPEC and its allies led by Russia approved a 400,000 barrel-a-day production hike till December 2021.

This development sent oil prices rallying as West Texas Intermediate (WTI) rose by 2.37percent to $82.78 while Brent Crude the benchmark for Nigeria’s crude oil jumped by 2.43percent to $83.98.

The Joint Ministerial Monitoring Committee (JMMC), which gives a recommendation for oil policy to the full ministerial OPEC+ meeting, “supports no change to OPEC policy,” Amena Bakr, deputy bureau vhief & chief OPEC correspondent at Energy Intelligence, reported, citing sources.

The “no change” in policy would mean that the JMMC would recommend to the OPEC+ ministers to stick to the current pace of easing the production cuts, which is increasing supply by 400,000 barrels per day (bpd) every month.

Read Also: Ahead today’s OPEC meeting, Bank of America predicts $120-a-barrel oil price

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OPEC members produce about 40 percent of the world’s crude oil. OPEC has been coordinating production decisions in recent years with other major suppliers, including Russia, as part of a larger grouping called OPEC+.

“The external flex on OPEC+ from oil-producing countries is mounting, especially from the United States, and has led to speculation that if the alliance itself doesn’t add supply to the market, the United States, possibly in coordination with other states, will be forced to quell the oil price rally by releasing crude from strategic reserves,” said Rystad Energy analyst Louise Dickson.

OPEC+ sources said the United States has plenty of capacity to raise production itself if it wants to help the world speed up an economic recovery.

Oil prices have surged this year to a three-year high above $86 a barrel as demand recovers from COVID-19 restrictions and OPEC+ gradually ramps up supplies.

Producers are concerned about going too fast, fearing renewed setbacks in the battle against the pandemic.

Russian deputy prime minister, Alexander Novak said that since August OPEC has already added 2 million bpd to global supply and will continue with its plan to add another 400,000 bpd each month in the later part of 2021 and the early months of 2022.

“There are some signs of decreased oil demand in the European Union in October. Global oil demand is still under pressure from the Delta COVID variant,” Novak said, explaining why OPEC+ has chosen not to add more barrels.

For Africa’s biggest oil-producing country, the state has a new production quota of 1.66 million bpd, a 14 percent increase compared to last production quota.

According to OPEC’s data, Nigeria’s output in October fell by 60,000 barrels a day to 1.44 million a day last month, just above the five-year low hit in August.

Kola Karim, chief executive of Nigerian producer Shoreline Natural Resources which has eight producing fields pumping around 50,000 bpd, said the backlog meant it would be one to two quarters before Nigeria could pump at its full capacity.

It means for Nigeria, while international oil prices rise, hopes that pressures on the local currency the Naira will ease, remain dashed.

Reuters reports that in Nigeria, five onshore export terminals run by oil majors, which typically export around 900,000 bpd, handled 20% less oil in July than the same time last year, despite relaxed quotas, according to analysis shared only with Reuters from consultancy Hawilti Ltd. The decline indicates lower production from all the onshore fields that feed these terminals.

Only French oil major TotalEnergies’ new deep offshore oilfield and export terminal Egina, had been able to quickly turn the taps back on, said Mickael Vogel, director at Hawilti, citing an analysis based on data from Nigeria’s Department of Petroleum Resources.

Onshore oilfield output has lagged as companies struggled with a lack of workers and cash. “Putting those wells back onstream has been more challenging than they thought,” Vogel said.

Bedeviled by a crushing slowdown in investment into its once attractive oil sector, Nigeria has struggled for years as its oilfields age and decline, and exploration has been insufficient to compensate, Justin Cochrane, director for African Regional Research for IHS, said.