No Surprises at Latest OPEC+ Meeting, But Prices Fall Anyway

Even though the market seemingly expected a 400,000 B/D increase from the oil exporting group, crude prices took a bit of a tumble.

A drilling rig in the UAE.
Source: Abu Dhabi National Oil Company.

The latest decision by OPEC and its non-OPEC allies, known together as OPEC+, reflects the body’s willingness to hold the line on its slow and steady return to pre-pandemic levels of crude production. On Thursday, 4 November, at the 22nd OPEC+ ministerial meeting, the group formally approved an output increase of 400,000 B/D for December deliveries.

The decision will raise the combined output ceiling of OPEC+ to more than 40 million B/D by the end of this year. This follows last month’s identical increase of 400,000 B/D, a decision that sent global benchmark crude prices to multiyear highs due to a tightening supply of energy, especially in Asia and Europe.

The reaction was different this time as prices took off in the hours leading up to Thursday's meeting only to make a swift retreat after its conclusion. West Texas Intermediate December future contracts closed the regular trading session down 2.45%, dropping from an intraday high of $83.42/bbl to $79.81/bbl. Brent crude January futures slumped by 1.77% from a session high of $84.49/bbl to $80.54/bbl.

According to the plan agreed upon by OPEC+ members in July, OPEC+ is to increase production by 400,000 B/D on a monthly basis until the end of 2022 and will meet each month until then to determine if the figure needs to be changed due to fluctuations in global demand. At the time, oil prices were generally around $70/bbl but are now nearly $10/bbl a higher after the October rally.

Despite calls from US President Joe Biden and his administration for OPEC+ to increase output at a faster clip, analytics firm Rystad Energy said any deviation from the prescribed 400,000 B/D increase would have come as a surprise for markets. After what she described as "unusual pressure from the US administration," Ann-Louise Hittle, vice president of Macro Oils at consultancy Wood Mackenzie, said, “This will be seen as disappointing by the US, which is asking for an extra increase closer to 600,000 B/D."

Following the ministerial meeting, and before US oil prices fell below $80/bbl for the first time in nearly a month, a Biden administration spokesperson was critical of OPEC+, telling US media that the group "seems unwilling to use the capacity and power it has" to buoy the global economic recovery. At this point, many consider OPEC+ to be content with its cautious approach to reversing the historic 9.7 million B/D cut it made in May 2020.

“The current demand-supply mismatch has pushed oil prices above $80 per barrel Brent for more than a month, which has been a short-term boon for OPEC+ producers but pain for consumers, in particular countries worried about inflation and post-pandemic economic growth,” Louise Dickson, a senior oil markets analyst at Rystad, shared in a statement.

“China has already responded to high commodity prices by releasing volumes of strategic petroleum reserves, and the US is discussing a similar maneuver, so if OPEC+ stays conservative, the market could expect some reactionary releases from the US and China,” she added.

According to data from the International Energy Agency, both Saudi Arabia and Russia have already surpassed pre-pandemic levels of production this year which has led to some speculation that other OPEC+ members may be struggling to raise output. Meanwhile, rising cases of COVID-19 in Russia and China have prompted new restrictions on mobility and commerce, potentially representing new headwinds for energy demand.