OPEC+ producers need to pump more oil to close the widening gap between nameplate production quotas and actual output, the executive director of the International Energy Agency (IEA), Fatih Birol, said on Monday.
The laggards in the OPEC+ oil output targets should look to produce more to balance the tight market, Birol said at the Egypt Petroleum Show in Cairo today, as quoted by Reuters.
If OPEC+ continues to fail in delivering its oil production targets amid rising demand and inventories at multi-year lows, oil prices will remain under upward pressure and are set for more volatility, the IEA said in its monthly report.
“If the persistent gap between OPEC+ output and its target levels continues, supply tensions will rise, increasing the likelihood of more volatility and upward pressure on prices. But these risks, which have broad economic implications, could be reduced if producers in the Middle East with spare capacity were to compensate for those running out,” the IEA said in its Oil Market Report for February.
“If OPEC+ cuts are fully unwound, the bloc could increase output by 4.3 mb/d. Of course, that would come at the expense of effective spare capacity, which could fall to 2.5 mb/d by the end of the year and end up held almost entirely by Saudi Arabia and, to a lesser extent, the UAE,” the agency said.
The gap between OPEC+ output and its target levels surged to as much as 900,000 barrels per day (bpd) in January, according to IEA estimates.
The chronic underperformance of OPEC+ and geopolitical tensions have pushed oil prices to more than a seven-year high, with Brent hitting $95 per barrel early on Monday amid fears of an imminent Russian invasion of Ukraine that could lead to disruption of oil supplies.
By Tsvetana Paraskova for Oilprice.com
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Is it not strange that he never called on US shale oil producers to raise their production given his excessive hype about shale oil potential. The truth of the matter is that the IEA is afraid to expose the fallacy of the claims about a comeback of US shale to pre-pandemic levels?
It isn’t OPEC+ production problems that is pushing crude oil prices higher. It is global oil demand that has entered a super-cycle phase that could last up to ten years and take Brent crude price to $120 a barrel in the next few years. Moreover, the market is in its most bullish state since 2014.
OPEC+ is doing its utmost to keep the market balanced. It has enough spare capacity to keep the oil market balanced in both 2022 and 2023. Beyond that, it urgently needs to add more capacity. This means it has to start investing heavily in expanding capacity immediately as it normally takes up to 5 years before investment reaches fruition.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London