OPEC+ Suddenly Think About Increasing Oil Production

Saudi Arabia and other members of the cartel are discussing boosting production to 500,000 BPD.

No sooner had the OPEC+ countries had time to start cutting production in accordance with the October 5 decision than they are already thinking about increasing it.

Saudi Arabia and other members of the cartel are discussing boosting production to 500,000 BPD, The Wall Street Journal reported, citing OPEC representatives. The issue began to be discussed on the eve of the next meeting of the organization and the countries that joined it, including Russia, which is to be held on December 4, the day before the embargo on Russian oil supplies to Europe comes into force.

On October 5, OPEC+ agreed to cut the quota by 2 million barrels per day, the decision came into force in November. The real reduction in production, according to experts, should be about 1 million barrels, since many countries, including Russia, have not used it to the full.

The decision to increase production looks strange against the backdrop of falling oil prices: since the first week of November, they have fallen by more than 10%. At the auction on Monday, the price of Brent fell by about 1% below $87 a barrel, but after the WSJ message, the fall by 18.20 Minsk time was already 4.9% to settle at $83.3. American grade WTI crude fell 5.2% to settle at $75.9 a barrel.

The price of Brent as a result fell below the post-war low reached at the end of September and fell to the level of January 11.

The WSJ reports that according to some delegates, production can be increased, as demand for oil always increases in winter. Demand is expected to increase in the first quarter of 2023 to 101.3 million BPD, up 1.69 million BPD from the 2022 average. However, the hopes of many experts for an increase in consumption in China as a result of the easing of the zero-tolerance policy for covid have not yet been realised. Over the weekend, Goldman Sachs lowered its Brent price forecast for the fourth quarter from $110 to $100 a barrel, explaining this by the situation with covid in China and the lack of certainty regarding a specific maximum level for the price of Russian oil, which the G7 countries have not yet made public. New lockdowns in China will lead to a drop in demand equivalent to a 2 million BPD output cut from OPEC+, the bank said in its report.

Three covid lethal cases were reported in China over the weekend, while so far, according to official statistics, there have been no deaths since May.

Another reason for the start of discussions about increasing production is that two large OPEC countries, Iraq and the United Arab Emirates, want to increase production, sources told the WSJ.

The October decision of OPEC + in Washington was perceived almost as a declaration of economic war. President Joe Biden has warned Saudi Arabia about the "consequences" of cutting oil production, and some U.S. politicians have made harsh statements. The decision "will give financial support" to Russia's war in Ukraine, Democratic Senator Robert Menendez, chairman of the Foreign Relations Committee, said then. The White House and Congress began to discuss measures to counter OPEC.

Riyadh insisted that the decision was made on fundamental grounds, in anticipation of a reduction in demand due to the sliding of the global economy into recession, and not for the sake of supporting Russia. The decision to increase production before the entry into force of the European embargo and in a situation where limiting the price of Russian oil could lead to a reduction in its supply will allow the Saudis to once again show that they are acting in their own interests and the interests of the market, and not Russia, the WSJ notes.