Image Source: TASS
The nations that export oil have decided to raise production next month out of concern that a global recession will reduce demand.
The Organization of the Petroleum Exporting Countries (OPEC+), usually known as OPEC, announced on Wednesday that it would increase its daily production by 100,000 barrels in September. OPEC+’s allies include Russia.
This was the first OPEC gathering since US President Joe Biden’s visit to Saudi Arabia last month. The nation, which is the largest oil producer in the group, was pushed by Biden to start pumping more.
As a result of Western embargoes on Russian oil, supply has been constrained globally for months, driving up prices. While millions of people are facing skyrocketing fuel costs, such prices have allowed the largest oil companies in the world to post record profits.
Although prices have since sharply declined, a gallon of ordinary gasoline in the United States reached $5 for the first time in June.
In the days following Russia’s invasion of Ukraine, the price of Brent oil, the world’s standard, also reached a high of $139 per barrel. However, Brent is currently trading at about $100 due to speculators’ concerns that a worldwide recession will damage demand.
Following OPEC’s statement on Wednesday, the North American benchmarks for Brent crude and West Texas Intermediate crude both initially increased as oil market participants anticipated a greater increase in production. But by midday, prices had decreased by around 2%.
Hazel Seftor, a senior research analyst for global oil supply at Wood Mackenzie, claims that a production increase has minimal impact on the overall supply situation because it represents a very small fraction of total output and is significantly less than rises in prior months.
Although it was the group’s smallest increase since May 2021, when it started relaxing production limits implemented during the pandemic, Seftor continued, the increase “is notable in that it reiterates the OPEC+ group’s commitment to controlling the market.”
“Critically low” oil stocks
Nevertheless, OPEC expressed worry on Wednesday that after 2023, the world’s supply may not be able to keep up with demand.
According to the report, the 38 members of the Organization for Economic Cooperation and Development, which comprises the largest economies in the world, have their lowest emergency oil stockpiles in more than 30 years.
The International Energy Agency issued a study last month stating that “world oil inventories remain critically low” and that emerging economies were particularly at risk.
OPEC+ has been attempting to restore production restrictions established during the epidemic when oil consumption plummeted for months.
The cartel agreed to raise production in June to make up for a decline in demand for Russian oil; in the same month, the European Union decided to reduce its imports of Russian petroleum by 90% before the end of the year.
In July and August, OPEC+ agreed to increase production by 648,000 barrels per day. But a Reuters study from earlier this week indicates that several nations have fallen short of their commitments.
According to OPEC’s statement on Wednesday, “chronic underinvestment in the oil sector” had “severely curtailed” the production capability of many of its members.
