OPEC+’s decision on Monday to remain with a plan to gradually increase oil output, despite prices leaping to multi-year highs, was influenced in part by concerns that demand and prices could decrease, according to sources close to the organization.
The other major cause is financial. According to three OPEC+ sources, the OPEC+ oil producers’ coalition led by Russia and top exporter Saudi Arabia is witnessing a revenue increase following a dip in income due to pandemic-induced demand and price collapse in 2020. In April 2020, OPEC+ agreed to record production cutbacks of roughly 10 million barrels per day (bpd) or nearly 10% of global output. “Everyone is delighted,” an OPEC+ delegate said about the current oil price level.
This year, OPEC+ has faced calls for additional production from users like the United States and India. Sources indicated the OPEC was mulling a more significant increase of 800,000 bpd ahead of Monday’s summit. It is about 1% of global output.
However, by Monday morning, the indications from OPEC+ sources had shifted ahead of their virtual meeting later that day. The most likely consequence was that OPEC+ would stick to its current increased output by 400,000 barrels per day. Based on experience, OPEC is more cautious because any quick move can result in a dramatic drop in oil prices,” an OPEC+ source said.
OPEC+ Is Concerned that Price Gains Might Reverse Just as Soon
It occurred in 2018 when Brent crude fell from above $85 a barrel to below $50.
Another OPEC+ source stated before the meeting on Monday that the cartel was under pressure to increase output faster.
According to another source, some group members were also concerned that a further increase in output would disrupt next year’s market balance. OPEC+ currently sees this as excess. Furthermore, it would risk pushing inventories above the five-year average in the second half. Oil soared beyond $81 on Monday. This resulted from OPEC+ keeping to its plan. Oil has since risen even further, reaching nearly $84 on Wednesday.
The additional cash for OPEC members will help to alleviate the agony of last year’s price drop. According to OPEC’s Annual Statistical Bulletin, OPEC earned $321 billion in 2020 from petroleum exports, a 43 percent decrease from 2019.
“With a 40 million population and a reliance on oil for 85 percent of our revenue, we hope it reaches $120!” said Ihsan Abdul Jabbar, Iraq’s oil minister. He joked at the Energy Intelligence Forum before declaring that 75-$80 was reasonable for consumers and producers.