OPEC has signaled it may actually be fine with oil at $100 after several cartel delegates said there were no plans to accelerate production growth despite soaring prices.
Brent crude briefly topped $99 today after Russia’s President Vladimir Putin signed a decree recognizing the independence of the two eastern Ukrainian regions of Lugansk and Donetsk and ordered army forces to enter them for peacekeeping purposes, the Kremlin said.
According to a Bloomberg report published later in the day, OPEC delegates from Iraq and Nigeria said they saw no need to change the terms of the current OPEC+ agreement, which calls for the addition of a combined 400,000 bpd to total monthly production until pre-pandemic levels of output are reached.
However, OPEC has been consistently failing to reach its quota, led by countries including Iraq and Nigeria. According to experts, the reasons for this failure are continued underinvestment, which has affected spare capacity.
“The market will have more and more oil,” Iraqi oil minister Ihsan Abdul Jabbar Ismail told Bloomberg. “We will not create any growth to the commercial storage. We will secure all the demand by making the required supply.”
“We won’t do anything extraordinary at this time because we are expecting a lot of production” from non-OPEC producers, Nigeria’s oil minister, Timipre Silva said. There is “no need at all to bring on more barrels than the current plan.”
Saudi Arabia’s energy minister has also been preaching caution because he believes the cartel needs to retain flexibility and focus on a long-term strategy.
These statements contradict sentiment expressed earlier this month by Egypt’s oil minister, Tarek el Molla.
“For me, being professional, I can see it happening, but I don’t want it to happen,” El Molla told CNBC last week, referring to Brent reaching $100 per barrel, and added, “It is on the way, definitely.”
Meanwhile, large consuming nations are again calling on those in OPEC that can boost production more to do it. However, according to Iraq’s top oilman, it would be unfair if one OPEC member raises production over its quota while others are finding it hard to fulfill theirs.
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By Irina Slav for Oilprice.com
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Moreover, a fair Brent crude oil price in my opinion ranges from $100-$110 a barrel. Such a price is good for the global economy as it invigorates the three chunks that make up the economy: (i) global investments; (ii) the global oil industry and (iii) the economies of the oil-producing countries.
If crude oil prices rise beyond the tolerance level of the global economy, it will let us know in no uncertain terms. In fact the global economy did exactly in 2008 and 2014.
In 2008 Brent crude hit $147 a barrel on the back of excessively booming housing market then but the subprime housing crisis driven by greed and lack of liquidity in US banks resulted in the world’s most serious financial crisis that almost brought the global economy to its knees and also led to a collapse of oil prices. The second occasion was the 2014 oil price collapse after Brent crude reached $115-$120 a barrel.
When crude oil prices rise beyond the tolerance level of the global economy, it leads to a gradual destruction of demand which forces prices down to a level acceptable to the global economy and consumers.
Therefore, OPEC+ sees no need yet to change its current production policies which call for the addition of a combined 400,000 barrels a day (b/d) monthly until pre-pandemic levels of output are reached.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London