Image Source: TASS
Fearing demand repression as a result of the global recession, the world’s oil-producing nations have agreed to a small increase in output for next month.
On Wednesday, OPEC+, commonly known as OPEC, said that it would increase its daily production by 100,000 barrels in September. OPEC+ is an organization of oil-exporting nations and their allies, which also includes Russia.
Following US Vice President Joe Biden’s trip to Saudi Arabia last month, this was the first OPEC gathering since then. The country, which produces the most oil in the group, was pushed by Biden to start pumping more.
Due to Western oil embargoes on Russia, the supply has been constrained for months, driving up prices. Even as millions of people experience skyrocketing fuel costs, the same prices have enabled the largest oil companies in the world to make record profits.
In the United States, the price of a gallon of ordinary gasoline topped $5 for the first time in June, but prices have since sharply declined.
The price of Brent oil, the world’s standard, also reached a high of $139 a barrel in March, just after Russia invaded Ukraine. However, Brent is currently trading at around $100 due to traders’ concerns that a worldwide recession could hurt demand.
Following OPEC’s statement on Wednesday, the benchmark North American crudes, Brent crude and West Texas Intermediate crude, initially rose as oil market participants anticipated a larger increase in production.By noon, though, prices had dropped by approximately 2%.
Hazel Seftor, a senior research analyst for Wood Mackenzie’s global oil supply division, asserts that a production increase has little impact on the supply situation overall because it represents a very small portion of total output and is much smaller than rises in prior months.
Although it was the group’s lowest increase since May 2021, when it started relaxing production curbs implemented during the pandemic, Seftor continued, the increase “is notable in that it reiterates the OPEC+ group’s commitment to controlling the market.”
“Crisis low” oil stock levels
However, OPEC expressed alarm on Wednesday about the possibility that, beyond 2023, the world’s supply may not be able to keep up with demand.
According to the Organization for Economic Cooperation and Development, which represents the world’s 38 largest economies, emergency oil stocks are currently at their lowest levels in more than 30 years.
Global oil stockpiles “remain critically low,” according to a report released by the International Energy Agency last month, and emerging economies are particularly at risk.
After the epidemic, when oil demand plummeted, OPEC+ attempted for months to restore production restrictions that had been made.
In order to offset a decline in demand for Russian oil, the cartel agreed to raise production in June. At the same time, the European Union committed to reducing its imports of Russian petroleum by 90% before the end of the year.
For the months of July and August, OPEC+ agreed to increase production by 648,000 barrels per day. A Reuters study conducted earlier this week, however, found that several nations had not lived up to their commitments.
Due to “chronic underinvestment in the oil sector,” according to OPEC’s statement on Wednesday, the production capacity of many of its members was “severely curtailed.”