Opec+ deal on supply boost from August
MEMBER COUNTRIES AGREE TO NEW PRODUCTION QUOTAS FROM MAY 2022
Opec+ ministers agreed yesterday to boost oil supply from August to cool prices which have climbed to 2-1/2 year highs as the global economy recovers from the coronavirus pandemic.
The group, which includes Opec countries and allies like Russia, agreed to raise the production limits imposed on five countries next year and boost their production by two million barrels per day by the end of this year. In a statement, the group announced that Iraq, Kuwait, Russia, Saudi Arabia and the UAE would see their limits rise.
UAE welcomes deal
“We are happy with the deal,” Suhail Bin Mohammad Al Mazrouei, UAE’s Energy Minister, told a news conference. “The UAE is committed to this group and will always work with it and within this group to do our best to achieve the market balance and help everyone,” Al Mazrouei said. He praised the deal as a “full agreement” among all the parties.
Opec+ last year cut production by a record 10 million barrels per day amid a pandemic-induced slump in demand and collapsing prices. From August until December 2021, the group will increase supply by a further two million bpd per month, Opec said.
Opec+ ministers agreed yesterday to boost oil supply from August to cool prices, which have climbed to two and a half years highs as the global economy recovers from the coronavirus pandemic.
The group, which includes Organisation of the Petroleum Exporting Countries (Opec) countries and allies like Russia, crucially agreed new production allocations from May 2022 after Saudi Arabia and others agreed to a request from the UAE.
“We are happy with the deal,” UAE’s Energy Minister Suhail Bin Mohammad Al Mazroui told a news conference.
Opec+ last year cut production by a record 10 million barrels per day (bpd) amid a pandemic-induced slump in demand and collapsing prices. It has gradually reinstated some supply to leave it with a reduction of about 5.8 million bpd.
From August until December 2021 the group will increase supply by a further 2 million bpd or 0.4 million bpd a month, Opec said in a statement.
The group had agreed to extend their overall pact until the end of 2022 from an earlier planned date of April 2022, to leave more room for manoeuvre in case global recovery stalls due to new virus variants.
New output allocations
While both Riyadh and the UAE had been supportive of an immediate output boost, the UAE had objected to extending the pact to December 2022 without getting a higher production quota.
To overcome the disagreement, Opec+ agreed new output quotas for several members from May 2022, including the UAE, Saudi Arabia, Russia, Kuwait and Iraq.
The overall adjustment will add 1.63 million bpd to supply from May next year, according to Reuters calculations.
The UAE will see its baseline production, from which cuts are being calculated, increase to 3.5 million bpd from May 2022 from today’s 3.168 million.
Saudi and Russia will see their baselines rise to 11.5 million bpd each from the current 11 million. Iraq and Kuwait will see their baselines rise by 150,000 bpd each.
Saudi Arabia’s Prince Abdul Aziz said Nigeria and Algeria could also see their baselines revised.
Clearer view
The deal has several important consequences. As demand recovers, it gives consumers a clearer view of how quickly Opec+ will revive the production it’s still withholding, after making deep cuts last year in the initial stages of the pandemic.
Nothing is set in stone. Opec+ will continue to hold talks every month including a review of the market in December. It could adjust the schedule if required, said Prince Abdul Aziz. The next meeting is on September 1.
Baseline adjustments
However, the baseline adjustments won’t alter the pace of the 400,000 barrel-a-day monthly output increases when they take effect next year, he said.
“With monthly meetings, the group wants to keep their hand on the oil market steering wheel,” said Giovanni Staunovo, a commodity analyst at UBS Group AG. The volume being added will keep the market fairly tight “so I would still expect prices to trend higher near term, before slightly declining towards the end of the year.”