OPEC+ broke a record this week. On Wednesday, the oil cartel booked the fastest meeting since its creation, at a total of 16 minutes. This was enough for member countries to agree to keep their current arrangement of adding 400,000 bpd to their combined oil production every month.
The outcome of the meeting surprised no one, unlike previous OPEC meetings when there was tense anticipation until the very end. This is no longer the case. This is mostly because of the last few monthly production reports of OPEC and its partners. According to them, most members of OPEC+ cannot produce as much oil as agreed.
In an article titled, "OPEC and Russia keep promising to pump more oil. They're not delivering", CNN quoted Rystad Energy's head of oil markets, Bjørnar Tonhaugen, as saying, "There are concerns in the market, partly priced in, that OPEC+ will not be able to produce what they say in the future.
"There is anxiety about damage to production capacity from Saudi Arabia to Kuwait and Russia, from too low investments during the pandemic and before," the analyst added.
A recent report by Bloomberg said that Russia's oil production rose last month, but it was likely that it could not reach the level set in the country's OPEC+ quota. Saying anything with certainty is difficult for Russia because it does not separate condensate from crude oil in its production reports. The total number reported by the energy ministry was 11 million bpd. Depending on how much of that was condensate, Russia may have been some 50,000 bpd below quota.
OPEC, meanwhile, is finding it equally tough to hit its production ramp-up targets. The cartel reported a combined output increase of 210,000 bpd for last month, falling short of its ramp-up quota of around 250,000 bpd: its share of the 400,000-bpd OPEC+ monthly boost for yet another month.
Even so, and even with the growing worry about global oil supply in this situation, OPEC appears to be unconcerned. Ahead of the Wednesday meeting, the OPEC+ Joint Technical Committee signaled that it still expected supply to exceed demand for oil this year, by a modest 1.3 million bpd. This is not what others are expecting, hence the recent slew of bullish oil price forecasts.
OPEC+'s "month-to-month supply increases of 400,000 bpd are either too immaterial for the market to appreciate and more importantly, not being completely fulfilled by the group," Reuters quoted Rystad senior market analyst Louise Dickson as saying last week.
"The only short-term solution for balancing the supply-short oil market will therefore need to come from OPEC+, and steered by Saudi Arabia, the producer with the largest spare capacity," she added.
Saudi Arabia does not appear inclined to boost production by any more barrels than it is already pumping. It seems that right now, we are watching a battle of the forecasts, with OPEC expecting sufficient supply and investment banks and other analysis providers doubtful about it.
The problem is that whoever wins the battle of the forecast, without enough oil supply—or enough perceived oil supply—prices will continue higher, aggravating an already grave enough inflation situation globally. The other problem is that, bar OPEC, there does not seem to be a producer big enough to step in and fill the gap.
There are forecasts about strong growth in U.S. crude oil production, but it will not be strong enough to compensate for OPEC+'s inability—and in some cases, unwillingness—to pump more barrels. What this shows is what a lot of elected energy transition planners would rather not see: the world is still as dependent on oil as it was 50 years ago, if not more.
By Irina Slav for Oilprice.com
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