Major oil producers set to uphold small output increase

By Benoît PELEGRIN, VIENNA Austria

The world’s leading oil producers are expected to uphold a July deal to slowly boost output at a meeting on Wednesday, despite US pressure to go further.

OPEC members led by Saudi Arabia along with allies including Russia, known collectively as OPEC+, decided in July to raise output by 400,000 barrels per day (bpd) each month from August, in a deal thrashed out after weeks of wrangling.

The move is aimed at supporting a global economic recovery, which has been battered by the coronavirus pandemic — a crisis that sent oil demand plummeting last year.

But US national security adviser Jake Sullivan said last month that the production boost agreed in July was “simply not enough” to fuel a global recovery.

However, analysts said Wednesday afternoon’s videoconference between the 23 OPEC+ partners was likely to uphold the July decision.

“It would be a surprise if they do anything (else) at the moment, despite pressure from the White House, given current price levels, demand and uncertain outlook,” said Craig Erlam, a market analyst from trading firm Oanda.

Helima Croft of RBC Capital Markets also said “staying the course is the most likely outcome” though “some members have expressed concern about the fragility of demand, most notably Kuwait”.

Kuwait Oil Minister Mohammed Al-Fares was quoted by the official Kuna agency as saying on Sunday that “all options” were still on the table. “No decision has been taken,” he said.

And Croft warned against “the perils of predicting” the outcomes of such meetings.

In a rare challenge to OPEC leader Saudi Arabia in July, the United Arab Emirates only agreed to the deal after a compromise was reached to adjust its output quotas next May, together with several other countries, meaning their actual cuts will be less.

Since May this year, OPEC+ members have raised oil output bit by bit with the aim of eventually returning to pre-pandemic production levels, after slashing them more than a year ago when the coronavirus pandemic crushed demand.

The grouping will “assess market developments” in December, OPEC said in July. It also agreed to extend a deadline on capping output from April next year to the end of 2022.

Oil prices — which had already been sliding owing to concerns about the global economy — plummeted in April 2020 as coronavirus spread around the world and hit global consumption, transport and supply chains.

OPEC+ then decided to withdraw 9.7 million bpd from the market and to gradually restore supplies.

Benchmark oil prices rebounded as a result to reach two-and-a-half-year highs.

The main international oil contracts have been trading around $70 per barrel.

But the market remains nervous with Covid infections and the Delta strain on the rise and governments mulling future lockdowns.