Opec+ ministers on June 2, 2022 agreed to raise their overall production ceiling by 648,000 b/d in each of July and August, four Opec+ delegates said, effectively unwinding what is left of the coalition’s production cuts one month earlier than initially planned amid Russian supply concerns.
A roadmap sketched out last July had scheduled more modest increases of 432,000 b/d for July, August and September. But with these larger increases, the coalition is now set to bring back by the end of August the nearly 10mn b/d of crude production that it took off the market in April 2020 in response to the Covid-19-induced collapse in world oil demand.
OPEC+ ministers also agreed that countries which have to date produced above their monthly quotas now have until December to compensate for this overproduction, one delegate said. Another highlighted that although the cuts will be unwound early, the current cooperation agreement between OPEC and its non-OPEC partners will still remain in place until the end of the year, leaving room for OPEC+ to continue monitoring market conditions and enact new output policy for the remaining four months of the year, if supply-demand fundamentals warrant it.
The OPEC+ coalition will hold its next ministerial meeting to monitor and respond to market conditions on 30 June.
June’s decision came on the back of a sanctions-induced plunge in Russian production following Moscow’s decision to invade Ukraine in late February, as well as growing calls from a host of consumer countries for higher OPEC+ production to combat surging energy prices.
The US and India have been at the forefront of such appeals, but were last week joined by G7 energy ministers, who called on oil and gas producing countries “to act in a responsible manner and to respond to tightening international markets.” OPEC and its partners have a “key” role to play in this, they said.
The sharp declines in Russian production will have hastened the coalition’s efforts to bring back production, with an internal Opec+ document showing Moscow’s output averaged 9.159mn b/d in April, down by 859,000 b/d from March. It faces further challenges, after the EU’s announcement
this week of a partial embargo on Russian oil imports, which will see the phasing out seaborne crude deliveries to the bloc within six months.
The OPEC Secretariat sees crude supply exceeding demand by 1.4mn b/d in 2022, according to delegates, a 500,000 b/d downward revision to its previous estimate. The revision was underpinned by a downgrade to oil demand and non-Opec supply, one delegate said, likely reflecting, at least in part, the difficulties Russia is facing.
Argus estimates that Russian crude production was more than 1.3mn b/d below its Opec+ quota in April, which helped drive overall OPEC+ compliance levels up to 220pc in April, from 129pc in January, according to an internal document. There was no discussion at today’s meeting about exempting Russia from its OPEC+ commitments, one delegate said.
All eyes are now on recoveries in Chinese demand, where Covid-19 lockdowns have partially been lifted this week in Beijing and key hub Shanghai. The buying rebound could come with a lag as Chinese inventories are at their highest for almost a year. Data from oil analytics firm Kpler show Chinese crude stocks have grown to around 935mn bl from 870mn bl in early March, giving refiners extra inventory to absorb before having to secure new purchases from abroad.
By Ruxandra Iordache, Nader Itayim and Bachar Halabi
Source: Argus Media
