OPEC+ is set to agree on Sunday a fourth increase in oil output targets in as many months, three OPEC+ sources said, even though the United States’ war with Iran is still preventing several of the group’s members from pumping more.
The war has cut oil flows via the Strait of Hormuz, creating the world’s biggest ever supply crisis as key OPEC+ members including Saudi Arabia have been unable to supply customers in full since the end of February.
The crisis for OPEC+ deepened when the United Arab Emirates left the Organisation of the Petroleum Exporting Countries after almost 60 years.
Seven core members of OPEC+, which groups OPEC and allied producers including Russia, have increased their output quotas from April to June by almost 600,000 barrels per day. In reality, the group’s production has collapsed due to export cuts by Gulf members, averaging 33.19 million bpd in April versus 42.77 million in February, according to OPEC figures.
The seven of 21 OPEC+ members due to meet on Sunday are Saudi Arabia, Iraq, Kuwait, Algeria, Kazakhstan, Russia, and Oman. Ministers from the 21 member states of OPEC+, the main oil producing nations and their allies, are holding their quarterly meeting online.
The seven members will likely increase targets by about 188,000 bpd from July, the sources said. This is the same as the June hike, which was adjusted down from monthly increases of 206,000 bpd in May and April to take into account the UAE exit.
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However, according to analysts, even if the cartel members vow to ramp up output by thousands of barrels per day, geopolitical realities mean they probably won’t move the needle on prices.
All the sources spoke on condition of anonymity and said a final decision had not been made.
A full OPEC+ ministerial meeting is also scheduled for Sunday but is not expected to make any policy changes, the sources said.
Dwindling supply
Tehran’s threats of retaliatory attacks to US and Israeli strikes have virtually blocked the vital Strait of Hormuz, through which roughly a fifth of global oil and gas supplies normally pass. That is equivalent to about 20 million bpd.
But with key Gulf producers shut out of the global market, pledges to raise output in a bid to ease spiralling prices are unlikely to sway traders.
“Any announced production increases or changes to output targets will have limited practical value,” said Ole Hansen, a commodities analyst at Saxo Bank. “There is very little OPEC can do,” he told AFP.
A US blockade on Iranian ports means “it will be even less than that” in reality, said Homayoun Falakshahi, head of crude oil analysis at data firm Kpler.
UAE slams the door
The UAE’s decision to quit OPEC further saps away at the cartel’s influence, given its huge excess production capacity. And Abu Dhabi has made clear it wants to boost output.
“They don’t want to be dictated to, they want to maximise their revenues,” said Lawrence Haar, a lecturer in finance at the University of Brighton in England.
And the cartel risks seeing other countries follow the UAE’s example. “If Iraq were to leave, it could mark the end of OPEC+,” Falakshahi said.
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Saudi Arabia, by far the cartel’s most influential member, “is going to do what it takes to stop anyone else from leaving,” Falakshahi predicted. That could translate into more flexible output quotas or decreased penalties for any excess production.
But “for now, the compensation framework has effectively become irrelevant due to widespread production shut-ins,” Hansen said.
As a result, the Iran war has largely neutralised the cartel’s stated mission “to secure an efficient, economic and regular supply of petroleum to consumers, and a steady income to producers”.
For Falakshahi, the only factor limiting further oil price spikes at the moment is China, “which is buying less oil than normal” by tapping into its vast strategic reserves.Latest News, Breaking News & Top News Stories | The Express TribuneAFPRead More