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Opec Megadeal Ends With Micro Move

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Opec-plus' agreement this week to increase production by just 100,000 barrels per day in September reflects a confluence of complex political and market factors. A desire not to risk antagonizing key member Russia, coupled with genuine demand fears — reinforced by oil prices that have fallen by almost $20 per barrel since mid-June — prompted Opec-plus energy ministers to opt for caution. September’s increase represents one of the smallest supply adjustments since Opec introduced quotas in the early 1980s. That may seem like an anticlimactic way to end Opec-plus' 27-month long pandemic supply response — which initially involved unprecedented cuts of 9.7 million b/d — but it also reflects the limited spare capacity the alliance now has to work with. Indeed, given the widespread failure of members to boost output in response to rising targets in recent months, perhaps only Saudi Arabia, the United Arab Emirates and Kuwait will deliver tangible new supply, amounting to a paltry 44,000 b/d (see table). This latest step may have surprised some observers, but it is consistent with the cautious approach demonstrated by Opec-plus during times of volatility. The group argued that wafer-thin spare capacity “necessitates utilizing it with great caution in response to severe supply disruptions.” This capacity crunch was down to “chronic underinvestment” across the oil supply chain, said the communique following the Aug. 3 meeting. Most members' inability to increase supply means that Opec’s Gulf core would have to disproportionately bear the burden of any serious output rise, requiring politically sensitive discussions to persuade others in the group of the necessity of such a course.

Topics:
Opec-Plus Supply , Opec/Opec-Plus, Oil Supply
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