Opec+ agrees to further gradual increase in oil output

Opec and its partners ratified their scheduled increase at a short online meeting on Wednesday. The group has made identical promises for several months, however, and been unable to fully implement them. 

As doubts grow about the whether the anticipated expansion in global inventories will actually happen this quarter, forecasts are piling up for a return to prices of $100 a barrel or more. Such a rally could ultimately provoke enough pressure from Saudi Arabia’s allies in Washington for a change of stance.

“If prices continue their precipitous rise, we see a path to Saudi Arabia reprising the regulator role and ramping up output,” said Helima Croft, chief commodities strategist at RBC Capital Markets. “Of course, the question is whether this would require a White House call.”

Riyadh’s reluctance so far stems from a concern that markets are about to tip back into surplus, as producers in the US and elsewhere begin ramping up production. Saudi energy minister Prince Abdulaziz bin Salman has repeatedly favoured cautious, gradual supply changes.

“Prudence as I’ve been preaching about is what saved us in Opec+,” he said just a few hours ahead of Wednesday’s meeting at a conference in Riyadh. “Prudence dictates that you have a bit of a think here and a bit of think there.”

Any extra barrels though would need to come from the kingdom and its Gulf neighbours as other members are largely maxed out. 

Opec’s 13 nations increased production by only 50,000 barrels a day in January as slight gains across the group were wiped out by a 140,000 barrel-a-day decline in Libya, according to a Bloomberg survey. The north African nation was stricken with a blockade of its western fields by militias, forcing the shutdown of its biggest reservoir, Sharara.

The 10 Opec nations engaged in managing supplies increased by 160,000 barrels a day in January, about two-thirds of their targeted amount. The full 23-nation Opec+ alliance is cutting far more than required, with a compliance rate of 122% in December, according to data presented to an internal committee on Tuesday.

Even Russia, which throughout the five-year history of Opec+ has often preferred to increase production more quickly, is suffering from constraints. The country’s producers pumped 46.53-million tonnes of crude and condensate in January, according to preliminary data from the energy ministry’s CDU-TEK unit. That could convert to 10.05 million barrels a day, or 50,000 below its quota for the month.

Opec+ will meet again on March 2.

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