OPEC and its allies on Thursday agreed to accelerate oil production in July and August, as Saudi Arabia bowed to US pressure to cool a crude price rally that has threatened to stall the global economy.
OPEC+ will increase production by 648,000 barrels a day in both July and August.
The group had been cutting the cap (and increasing output) by around 432,000 barrels a day in recent months.
But analysts reckon OPEC+ members (except the Saudis and UAE) have been short of their cap quotas by around 2 million barrels a day even before Russian production is factored in.
That has helped keep oil prices well above $US100 a barrel.
The group has been slowly returning the nearly 10 million barrels per day it agreed to pull from the market in April 2020, after the price of US West Texas Intermediate (WTI) plunged to a negative $US37 a barrel in confused trading.
The news Thursday of the cap cut had the reverse impact on prices – they rose instead of easing, as they did on Thursday in Asian trading when suggestions that the Saudis would agree to a boost first appeared.
WTI ended the day at $US116.87 a barrel for a gain of 1.4%. International marker crude, Brent added 1.14% to settle at $US117.61.
Helping push prices against the negative trend of the lift in the production cap were a EU ban on new insurance arrangements for tankers carrying Russian crude and a six month phase out for existing deals and a much larger than expected fall in US crude stocks – 5.1 million barrels last week instead of the less than 2 million in market forecasts.
The Saudi decision comes as the world grapples with surging energy prices. Governments, including the Biden Administration, have been calling on producers to raise output in an effort to calm oil’s price strength.
There was no mention of Russia leaving the OPEC+ group, as had been suggested during the week.
OPEC+ has been struggling to meet production quotas. Moreover, the additional barrels slated to hit the market will not make up for the potential loss of more than 1 million barrels a day from Russia as nations around the world ramp up sanctions following the invasion of Ukraine.
After the OPEC+ announcement, the White House let it be known that President Biden would visit Saudi Arabia next month. Oil analysts reckon there could be more on oil production levels as a result of this meeting.
It was as though the Americans were waiting for tangible evidence from the Saudis that they make some gesture on production that would allow a Biden visit and a kiss and make up session between the two countries.
In the past US Presidents have gone with agreed deals to sell more arms to the Saudis (President Trump for example). This time Biden and the administration want more oil pumped to try and put a lid on global oil prices and help control inflation.
