OPEC and its partners have agreed to increase production as the outlook for global oil markets improves despite the latest COVID-19 variant.
The 23-nation alliance led by Saudi Arabia and Russia approved the 400,000 barrel-a-day increase scheduled for February. The group is sticking to its plan to gradually restore output halted during the pandemic after its analysts predicted a smaller surplus this quarter than previously expected.
Global fuel consumption continues to recover from 2020’s collapse. There’s rising traffic and factory activity across key Asian markets and dwindling crude oil inventories in the U.S., buoying oil prices to nearly $80 U.S. a barrel in London trading.
OPEC+ has already restarted about two-thirds of the production they halted in the early stages of the global pandemic. They are seeking to drip-feed the remainder at a pace that will satisfy the recovery in fuel consumption -- and stave off any inflationary price spike -- without sending the market into a new slump.
There are questions about whether OPEC+ will actually deliver the full monthly increment given the recent struggles of some members such as Angola and Nigeria to hit their production targets.
Just 130,000 barrels a day of additional OPEC+ crude oil is likely to hit the market in January, followed by 250,000 barrels a day in February, according to industry forecasts. The group has said several times that it has the option of pausing or even reversing its scheduled supply increases if needed.
While the Organization of Petroleum Exporting Countries and its partners still expect a supply surplus to emerge this month, it appears to be smaller than previously thought. The increasing price premium of near-term Brent crude oil futures over later-dated contracts suggest the market remains tight.
Production will exceed demand worldwide by 1.4 million barrels a day in the first three months of the year, the group’s Joint Technical Committee has concluded, compared with 1.9 million in its previous assessment.
OPEC+ is scheduled to hold its next meeting on February 2.
