OPEC+ Debates Potential Oil-Output Boost Before Big Meeting
(Bloomberg) -- OPEC and its allies debated a potential output increase, delaying preliminary talks between ministers by a day to allow more time for a compromise before a critical meeting on Thursday.
The coalition, led by Saudi Arabia and Russia, is considering whether to continue reviving more crude supplies, a move that could ease the upward pressure on prices as global demand bounces back from the coronavirus pandemic. Possible supply hikes are being discussed for August or September, Kazakhstan’s Energy Minister Nurlan Nogaev told reporters on Wednesday.
Kazakhstan’s minister said he will argue in favor of an increase and the group will decide how to proceed on Thursday. Delegates said some producers have discussed extending the overall time-frame of the deal, which is due to expire in April, to the end of next year.
“OPEC countries are cautious with regard to output-increase strategy amid oil market challenges,” Kuwait’s Oil Ministry said in a statement on Wednesday. “Any decision the organization will take will be in the interests of producers and consumers.”
As oil prices have climbed to the highest level in around 2-1/2 years, analysts widely expect the group to tap some of the vast capacity it shuttered last year. The average expectation is for an increase of 550,000 barrels a day -- roughly 10% of the volume that remains idle.
Brent crude rose 0.7% to $75.31 a barrel at 2:24 p.m. in London. While the global benchmark is down this week amid growing concern about a more contagious variant of the virus, it is still up about 45% this year. The price increase, part of a broader rally in commodities, has stoked fears of inflation.
“The choice OPEC+ now faces is whether to consolidate those gains and allow prices to stabilize, or to let prices rise further, attracting mounting ire from consumers,” analysts at Standard Chartered Plc, including Sudakshina Unnikrishnan, said in a note Tuesday.
The 23-nation alliance had been due to convene its advisory body, the Joint Ministerial Monitoring Committee, on Wednesday. That session will now take place on Thursday, the same day as the main policy meeting.
Delegates said it was to allow more time for talks. According to an official letter, Russia’s Deputy Prime Minister Alexander Novak sought the delay because of “presidential commitments.”
Russia, which faces less budgetary pressure to sustain high prices than many of its Middle Eastern allies, wants OPEC+ to boost production, according to people familiar with its oil policy. Riyadh’s position isn’t currently aligned with Moscow, delegates said.
OPEC+ was forced to postpone events as recently as December, when a similar split between Riyadh and Moscow caused the group to delay talks by two days. It ultimately found a compromise, agreeing on a modest production increase.
In recent months, Saudi Energy Minister Prince Abdulaziz bin Salman has urged the Organization of Petroleum Exporting Countries and its partners to adopt a cautious approach in resuming output. He recently argued that this is “paying off.”
Some OPEC nations fear that the potential restart of exports from fellow member Iran could lead to a new glut, and believe the alliance needs to prolong supply restraints to the end of next year. Tehran is seeking an accord to remove U.S. sanctions on its petroleum sales, though the process has stalled.
Oil inventories will start accumulating again next spring if OPEC+ fully restores its shuttered supplies, according to data presented on Tuesday at the group’s Joint Technical Committee.
Stockpiles will swell to stand 181 million barrels above their 2015-2019 average by the end of 2022, the data suggests. The glut would be significantly larger if supplies rebound from Iran and other currently constrained producers, according to the JTC.
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