OPEC+ overcame the dispute between the United Arab Emirates (UAE) and Saudi Arabia and reached a deal on July 18 to increase production.
The group is raising its overall production by 400,000 b/d monthly starting August 2021 until phasing out the 5.8 million b/d production cut, according to a statement following the meeting. In December 2021, the group will assess market developments and participating countries’ performance.
The group will continue to adhere to the mechanism to hold monthly OPEC and non-OPEC Ministerial Meetings for the entire duration of the Declaration of Cooperation, to assess market conditions and decide on production level adjustments for the following month, endeavoring to end production adjustments by end September 2022, subject to market conditions, the statement continued.
The meeting noted the ongoing strengthening of market fundamentals, with oil demand showing clear signs of improvement and OECD stocks falling, as the economic recovery continued in most parts of the world with the help of accelerating vaccination programs.
Although the UAE had been supporting an immediate increase in production, the UAE objected to Saudi Arabia’s idea of extending the agreement to December 2022 without a higher production quota (OGJ Online, July 6, 2021). To overcome the disagreement, OPEC+ agreed to new output quotas for several members from May 2022, including the UAE, Saudi Arabia, Russia, Kuwait, and Iraq.
“The market is very tight and a supply increase of 400,000 b/d will turn out to be a pittance,” said Ed Morse, global head of commodities research at Citigroup. Demand is significantly higher, despite the COVID-19 pandemic exploding in parts of the world, and oil prices are likely to climb much higher by summer’s end, he said.
The planned output increase from OPEC+ is moderate and will keep the market in deficit, said Goldman Sachs analysts, who noted that while the plan supports its constructive views on oil, prices may fluctuate in the near term due to concerns about COVID-19 variants.
Oil prices fell after the deal was reached. West Texas Intermediate (WTI) crude for August delivery dropped nearly 3.7% to $69.16/bbl. September Brent tumbled 3% to $71.36/bbl.