Page 9 - FSUOGM Week 06 2022

FSUOGM POLICY FSUOGM

OPEC+ makes quick decision but

adding production will be harder

OPEC THE OPEC+ group this week agreed to ease production globally, Goldman Sachs anticipates
their collective production restraint by a fur- an oil price above $100 per barrel in Q3, noting
The meeting lasted only ther 400,000 barrels per day (bpd) in March in a that spare capacity could reach historic lows of
16 minutes. meeting that lasted just 16 minutes. around 1.2mn bpd around that time.
The 23 members’ rapid decision came as oil S&P Global Platts quoted delegates as saying
prices rose beyond $90 per barrel on the back that there had been no discussion on countries
of geopolitical concerns in the Middle East using spare capacity to fill supply gaps left by oth-
and Eastern Europe. Despite the move, supply ers failing to reach their targets, with Saudi-based
concerns are likely to linger, with a Bloomberg Jadwa Investment this week suggesting the King-
survey suggesting that the 13 OPEC members dom’s output could average 10.3mn bpd in 2022.
were only able to achieve a production increase While it is likely that Middle Eastern nations
of 50,000 bpd in January, as output from Nigeria could make short-term gains – Kuwait and Saudi
rose by 160,000 bpd during the month. However, Arabia are pressing ahead with field expansion
the group actually ended up registering a drop projects, both domestically and in their shared
of 90,000 bpd following the shutdown of Libya’s Partitioned Neutral Zone (PNZ), while Iraq has
Sharara oilfield. already said it intends to export around 100,000
The wider OPEC+ group fared even worse, bpd more in February – OPEC will need to play
underproducing by more than 820,000 bpd in a delicate balancing act between the market and
January. its relations with Russia.
As smaller producers struggle to raise their One of Platts’ sources said that this relation-
output, Middle Eastern countries may need ship could be strained if OPEC members begin
to ramp up disproportionately, with industry overproducing and claim Russia’s share of the
estimates suggesting that 90% of the group’s market. “I do not imagine that Russia will accept
spare capacity is now held by Saudi Arabia and the principle that countries which have addi-
the UAE. The pair have maximum production tional spare capacity can increase their produc-
capacities of 12mn bpd and 4mn bpd respec- tion when it cannot do so,” he said.
tively, though work is ongoing in both countries The group is unlikely to be rushed into any
to add another 1mn bpd each. knee-jerk moves, though, with JP Morgan’s
According to data compiled by IGM Energy, Christyan Malek telling the FT: “OPEC+ is not
OPEC+’s top five producers in January were: in any rush to raise production too quickly or to
Russia (just over 10mn bpd); Saudi (just under backfill for members that might be struggling to
10mn bpd); Iraq (4.3mn bpd); the UAE (2.9mn meet their targets, no matter the concerns over
bpd) and Kuwait (2.6mn bpd). Ukraine or the return of $90 oil. They have a plan
With Middle East oil ministers and executives they want to stick to and don’t want to be seen to
calling out IOCs for underinvestment in new be pushed around.”™

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