OPEC+ warned of the impacts to oil supply due to underinvestment as it announced a decision to increase collective production by 100,000 B/D.
The quota hike begins in September at which point OPEC+ will have a required production total just shy of 44 million B/D. The breakdown pegs the quota for the 10 participating OPEC members at 26.7 million B/D with the 11 non-OPEC members responsible for the remaining 17.2 million B/D.
Market commentators pointed out that the 100,000 B/D increase approved on 3 August marks the single smallest production boost OPEC+ has ever agreed to and is the smallest that OPEC members have participated in since 1986.
Oil prices were relatively unmoved in the hours following the OPEC+ meeting. West Texas Intermediate futures fell less than a percent to trade around $93.75/bbl while Brent crude also fell less than a percent to $99.94/bbl.
In a statement following the 31st OPEC+ meeting, the group cited some of the biggest factors shaping its thinking around crude supplies going forward. The list includes the following comments:
- “ … The severely limited availability of excess capacity necessitates utilizing it with great caution in response to severe supply disruptions.”
- “ … Chronic underinvestment in the oil sector has reduced excess capacities along the value chain (upstream/midstream/downstream).”
- “ … Particular concern that insufficient investment into the upstream sector will impact the availability of adequate supply in a timely manner to meet growing demand beyond 2023 … "
The OPEC+ meeting also called attention to dwindling commercial stocks of crude within member nations of the Organization of Economic Cooperation and Development (OECD) in highlighting “that emergency oil stocks have reached their lowest levels in more than 30 years.” OPEC+ said the 38-nation OECD crude stocks were around 2.7 billion bbl in June, or 163 million bbl lower than at the same time a year ago and 236 million bbl below the 2015–2019 average.
Analysis from S&P Global and Bloomberg noted that the 100,000 B/D quota raise may realistically translate to just 34,000 B/D being added to the market by September if it is assigned proportionally. The figure is the sum contribution of Saudi Arabia (26,000 B/D) and the UAE (8,000 B/D), which are the two members in the OPEC+ alliance considered to have the most significant spare capacity, if any, at this time.
OPEC+ spare capacity has been a subject of much scrutiny this year as the group struggles to erase the historic cuts made in 2020.
In June, OPEC+ was said to be 2.84 million B/D shy of meeting its approved production levels for the month. This is according to figures first reported by Russia’s Interfax news service which said cuts in oil output pledges reached 320% in June vs. 256% in May.
The rising compliance figure reflects that many OPEC+ members do not have the ability to return to their pre-pandemic levels of output.
OPEC+ will meet again to decide on further production hikes on 5 September.
