Opec-Plus May Pause Oil Output Hikes

Copyright © 2021 Energy Intelligence Group
Austria OPEC Meeting

Opec-plus delegates tell Energy Intelligence that the alliance may consider pausing increases in its oil output after the US and other nations announced plans to release crude into the market from their strategic stockpiles.

They said this option has not been discussed by the alliance so far, but that it could be raised when Opec-plus ministers hold their next meeting on Thursday, Dec. 2.

The meeting will review market conditions and the alliance's supply policy, which currently calls for monthly increases in production of 400,000 barrels per day.

Tuesday's news that the US will release up to 50 million barrels of crude oil from its Strategic Petroleum Reserve (SPR) is an important new factor that the ministers will have to consider. Other countries plan to release smaller amounts of oil.

A new round of Covid-19 lockdowns in Europe and forecasts that oil supply could outstrip demand as early as December — even without additional SPR crude — could provide Opec-plus with additional reasons to hit the pause button.

"Some of the group members might present the option to pause the easing at the next meeting, which will then take effect in January," said one Opec-plus delegate.

"But nothing is clear yet. The dust didn't settle yet from the [US] announcement yesterday."

However, other delegates told Energy Intelligence they expect the alliance to stick with its monthly increases of 400,000 b/d, which would align with Washington's wishes to increase oil supplies to put some downward pressure on prices.

Diplomacy Fails

Opec-plus has been increasing output at that rate since August as it seeks to reverse production cuts of almost 10 million b/d that were made last year as demand for oil collapsed during the early phase of the Covid-19 pandemic.

But the US and other consuming nations such as India had urged the alliance to accelerate the reversal of those cuts — without success.

A US official told Energy Intelligence that Opec-plus ministers had been given advance notice about the decision to release SPR oil ahead of the official announcement.

Energy Intelligence understands that Opec ministers have agreed not to make any public statements ahead of next week's meeting.

But just hours before the White House announcement, United Arab Emirates Energy Minister Suhail al-Mazrouei told reporters in Dubai that he did not expect Opec-plus to make any substantive changes in its supply policy.

Prior to the announcement, US officials had held talks with leaders from Opec-plus countries, including Saudi Arabia and Russia.

But given the Biden administration's frosty relations with those two countries, its pleas for more oil fell on deaf ears.

Does the World Need More Oil?

Opec-plus has argued that the global market is not short of oil, and the International Energy Agency recently forecast that supply would increase by 1.5 million b/d from October through December, including 400,000 b/d from the US.

Even during periods with warmer ties between the US and Saudi Arabia, US presidents often struggled to get a helping hand on oil prices from Riyadh.

Meanwhile, the potential return of Iranian oil to the global market now seems like a very remote possibility.

The US and Iran have failed to make progress toward a deal that could revive the 2015 Iran nuclear agreement and allow Tehran to export more oil.

For now, it seems that the US' move to release SPR oil into the market will only cause further tension between producers and consumers of oil, and the words "price war" are already being whispered once again.

EU member states are divided over whether major reforms of the bloc's wholesale gas and power markets are needed after a recent surge in prices.
Thu, Dec 2, 2021
Opec-plus kept its powder dry and stuck with its agreed output relaxation schedule in the face of the new Omicron demand threat.
Thu, Dec 2, 2021
Oil prices have taken a beating, but make no mistake — the US oil patch is still flush with cash.
Thu, Dec 2, 2021