Nigeria and other Organisation of Petroleum Exporting Countries (OPEC) has agreed to increase oil production gradually from May to July, responding to both internal and external pressure to supply more crude to the recovering global economy.
Members of the 23-nation oil-producing alliance defy market expectations for the second time in less than a month by agreeing to raise output by 350,000 barrels per day in May and June, and 400,000 bpd in July, according to a statement from the Energy Ministry of Kazakhstan.
“Increasing production by about 1 million barrels a day over three months when product demand is expected to rise by about 3 million barrels a day over the same period is not bearish,” Roger Diwan, a vice president at IHS Markit Ltd. and veteran OPEC-watcher, said on Twitter. “It is conservative anticipation, but anticipation nonetheless.”
Under Thursday’s deal, oil cuts implemented by OPEC+ would be just above 6.5 million bpd from May, compared with existing curbs of slightly below 7 million bpd in April.
Brent crude, which slipped on news of the deal, was still trading above $62 a barrel, still more than 20percent up on the start of the year and not far from this year’s high around $71.
Since April last year, the 23-nation OPEC+, made up of the 13-member Saudi-led OPEC, or Organization of the Petroleum Exporting Countries, and 10 non-OPEC nations steered by Russia has withheld at least 7.0 million barrels per day of supply from the market.
Russian Deputy Prime Minister Alexander Novak told Thursday’s OPEC+ meeting that global oil demand was anticipated around 5.0 to 5.5 million bpd this year.
But while the alliance’s production cuts had slashed much of the Covid-19 related oil glut seen from March 2020, oil stocks remained above the 2015-2019 level, an OPEC+ document circulated at the meeting said.
The rollout of coronavirus vaccines and supply curbs had underpinned the market’s rally of the past four months. But that’s fraying now on concerns that near-term consumption was at risk, particularly in Europe where France has announced a new month-long lockdown.
Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries, pointed this week to the market’s recent volatility as “a reminder of the fragility facing economies and oil demand.”
“A decision to delay an easing in current levels of production restraint would increase the tightness in the second-quarter and potentially boost prices ahead of the peak summer demand season,” Ann-Louise Hittle, vice president for macro oils at Wood Mackenzie, told Bloomberg.
Recall, United States’s Energy Secretary Jennifer Granholm called her Saudi counterpart Prince Abdulaziz bin Salman on the eve of the OPEC+ meeting to highlight the importance of affordable energy.
In the past, US former President Donald Trump had used his influence to force Saudi Arabia to adjust policy. When prices spiked, he insisted OPEC raise production. When oil prices collapsed last year, hurting US shale producers, he called on the group to cut output.
Until this week, Biden’s administration had refrained from such an approach, keep more of a distance from Riyadh and imposing sanctions on some Saudi citizens over the 2018 murder of Jamal Khashoggi.
“We need to keep our finger on the market pulse and not allow an overheating or a significant deficit,” Russian Deputy Prime Minister Alexander Novak, whose country has been steadily increasing production this year, said at the opening session of the meeting. “Since we last talked, the situation has improved and the trend is positive.”
