Opec-Plus Rubber-Stamps Modest Supply Increase

Opec-plus ministers brushed off consumer nations' concerns about high oil prices on Wednesday and swiftly rubber-stamped another nominal increase of 400,000 barrels per day in the alliance's production for the month of March.

The widely expected move had little impact on oil prices, with the front-month Brent futures contract trading in the high $80s per barrel, just shy of recent seven-year highs, as the Ukraine standoff keeps the market on edge.

In recent months, the US and other major oil-consuming nations have urged Opec-plus to step up the pace of their production increases to bring down fuel prices, which have helped to drive global inflation to the highest level since the early 1980s.

But Opec-plus opted on Wednesday to stick with the monthly increases of 400,000 b/d that it has been targeting since last August, even though some members have recently struggled to deliver their share of those increases.

The shortfall in Opec-plus production looks set to increase going forward and has already led to concerns that the world will not have enough spare production capacity to draw on if there is a major supply disruption somewhere in the world.

Olympic Record

Wednesday's monthly Opec-plus meeting lasted just 16 minutes, reflecting a unanimous desire to stick with the previously agreed pace of production increases.

Delegates said Saudi Oil Minister Prince Abdulaziz bin Salman had challenged his colleagues to establish a new record for the brevity of the meeting "in the spirit of the Olympic Games in China."

Delegates said there was there was no discussion of recent Opec-plus underproduction, nor of high oil prices or the issue of spare capacity.

"There were no objections from anyone on keeping the policy unchanged," one delegate noted.

While the decision taken was in line with expectations, officials in consumer nations had been hoping that the alliance might accelerate its production increases, given the current high level of oil prices.

However, there is a strong belief within the group that moving faster to boost supply could exacerbate concerns about the low level of global spare production capacity and possibly unsettle the market.

Challenging April Meeting

The next Opec-plus ministerial meeting will be held on Mar. 2 and the following month the alliance will face a potentially much more challenging meeting.

At their April meeting ministers will need to revise production targets for individual countries in line with a previous agreement to grant higher production bases for members including Saudi Arabia, the United Arab Emirates and Russia.

With that in mind, ministers may have wanted to avoid difficult and potentially divisive discussions at this week's meeting, ahead of tough talks in just two months' time.

Updated market forecasts reviewed by the Opec-plus ministers showed estimates of supply and demand largely unchanged, with demand projected to grow by 4.2 million b/d this year.

But an internal report prepared for the meeting did strike a confident tone, stating that "world oil demand will surpass pre-Covid-19 levels in [the second half of 2022] with a healthy recovery trend."

Base-case and low-demand scenarios show slight surpluses in OECD commercial oil stocks by the end of this year versus the pre-pandemic average for 2015-19, while the high-demand scenario shows a very slight deficit versus the average (see table).