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Opec-Plus Opts for Minimal Supply Increase

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Opec-plus agreed on Wednesday to increase its targeted production by 100,000 barrels per day in September, a cautious and largely symbolic move that fell within the range of market expectations.

The alliance's ministerial meeting followed US President Joe Biden's visit to Saudi Arabia last month. US officials had said they had expected to see both Saudi Arabia and the United Arab Emirates (UAE) increase oil supply.

The modest increase is unlikely to make much of a difference in a world that consumes around 100 million barrels of oil per day.

Energy Intelligence understands that it was intended as a token of goodwill, while sending a message that other countries need to increase upstream oil investment.

Brent crude oil futures fell by more than $3, taking them below $100 per barrel, but that was attributed to other factors.

Many Opec-plus members — including Russia — have been producing below their quotas, and only Saudi Arabia and the UAE have significant spare capacity.

Opec-plus emphasized that this spare capacity would not be used lightly, despite pleas by consumer nations to increase supply and drive down prices.

"The meeting noted that the severely limited availability of excess capacity necessitates utilizing it with great caution in response to severe supply disruptions," said a statement released through the Opec Secretariat.

US: Step in Right Direction

The Biden administration sought to put a positive spin on the modest increase in Opec-plus output from September.

In an interview with CNN, US State Department energy adviser Amos Hochstein described it as "a step in the right direction," noting that oil prices had already fallen and that the administration wanted to see them fall further.

Hochstein sidestepped a question about whether the Opec-plus increase was big enough to move prices.

"Our main focus is not about the numbers of barrels. Our main focus is on bringing prices down ... and there I think that we're in decent shape, and we're going to continue to work to bring it down lower," he said.

Limited Spare Capacity

Energy Intelligence understands that Mideast Gulf states, which hold most of the alliance's spare capacity of around 2.5 million b/d, have no intention of putting it all to work and producing at full throttle.

Under the new Opec-plus quotas for September, Saudi Arabia's production ceiling will rise by around 26,000 b/d and the UAE's by 7,000 b/d (see table).

However, several smaller Opec-plus producers did not get an increase in their quotas. Baseline production levels for all members remained at levels agreed in July 2021.

During Biden's visit to Saudi Arabia in July, Saudi officials emphasized that all oil producers — including non-Opec-plus producers like the US — had a shared responsibility to invest the money needed to maintain sufficient supply.

The statement released after the Opec-plus meeting reiterated this point, saying that "chronic underinvestment in the oil sector has reduced excess capacities along the value chain (upstream/midstream/downstream)."

Required Production
('000 b/d)Sep'22Aug'22Chg.
Algeria 1,057 1,055 2
Angola 1,529 1,525 4
Congo 325 325 0
Eq.Guinea 127 127 0
Gabon 187 186 1
Iraq 4,663 4,651 12
Kuwait 2,818 2,811 7
Nigeria 1,830 1,826 4
Saudi Arabia 11,030 11,004 26
UAE 3,186 3,179 7
Azerbaijan 718 717 1
Bahrain 205 205 0
Brunei 102 102 0
Kazakhstan 1,710 1,706 4
Malaysia 595 594 1
Mexico 1,753 1,753 0
Oman 883 881 2
Russia 11,030 11,004 26
Sudan 75 75 0
South Sudan 130 130 0
Opec 10 26,753 26,689 64
Non-Opec17,202 17,165 37
Opec-Plus43,955 43,854 101

Strong Cohesion

Delegates attending the meeting told Energy Intelligence that the idea of increasing output by 100,000 b/d was proposed by the Saudi delegation.

They said agreement on this was reached swiftly, given the small size of the increment. Cohesion within the group remains strong, they added.

Saudi Arabia and other members are particularly keen to retain Russia as a member to give the alliance more clout.

Deputy Prime Minister Alexander Novak, who represents Russia at Opec-plus meetings, said the alliance had acted "cautiously" with its latest modest increase, given the current market situation.

Wednesday's meeting was attended by Opec's newly elected secretary-general, Haitham al-Ghais of Kuwait.

Saudi Energy Minister Prince Abdulaziz bin Salman paid tribute to former Opec Secretary-General Mohammed Barkindo, who died in July.

"We lost a hero but we elected a hero as the new Opec secretary-general," Prince Abdulaziz said.

Topics:
Oil Supply, Opec/Opec-Plus
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