OPEC+ once again fell short of its oil production targets in May on continued production declines in many OPEC members, a survey by S&P Platts found, as cited by OPEC and Middle East managing editor Herman Wang.
In April, OPEC alone missed its target by 2.7 million barrels daily, and while there was a slight improvement in May, the total was still well below quotas. Last month, production in Nigeria dropped to the lowest since Platts has been surveying OPEC output, Wang noted.
Angola, Equatorial Guinea, and Congo also produced well below quotas last month, and most of the OPEC+ partners also produced less than agreed. Russia's production actually inched up in May after falling in April.
OPEC+ agreed last week to boost production in July and August by 648,000 bpd instead of the originally agreed 432,000 bpd. Some observers took that to mean success for Western diplomacy, but the market reacted in what was perhaps a counterintuitive, at first glance, way, with prices actually rising after the announcement.
Indeed, many OPEC members have been struggling to fulfill their original production quotas, and that has been no secret. Only Saudi Arabia, the UAE, and Kuwait have spare capacity that can be quickly tapped to make up for shortfalls. However, they may be reluctant to do that as more spare capacity being tapped means less spare capacity left for when an outage happens.
"With only a handful of ... OPEC+ participants with spare capacity, we expect the increase in OPEC+ output to be about 160,000 barrels per day in July and 170,000 bpd in August," JP Morgan analysts wrote in a note, as cited by Reuters, this week.
What all this suggests is that, as the FT's David Sheppard noted in a recent column, the world may need to brace up for even higher oil prices.
"China is reopening. People are flying again. Demand is going in the wrong direction," Sheppard wrote. "All these factors point to rising oil prices until a level is reached that reduces consumption, probably by triggering an economic slowdown large enough to curtail demand. In other words, a recession for many economies."
By Irina Slav for Oilprice.com
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