OPEC Plus Is Unable to Decide Whether to Raise Oil Output
For more than a year, OPEC Plus has kept a tight grip on oil production, helping to lift prices by around 85 percent since November.
Time to increase oil production? OPEC and its allies are unable to decide.
A worker at the Saudi Aramco oil facility in Abqaiq, Saudi Arabia. Oil prices have risen about 85 percent since late last year, as demand has slowly revived.Credit…Maxim Shemetov/Reuters
By Stanley Reed
July 1, 2021, 7:17 a.m. ET
Officials from OPEC, Russia and their allies failed to reach agreement on Thursday on whether to ease the output quotas that have helped drive up oil prices to their highest levels since 2018. On Thursday, the oil ministers met by videoconference but were unable to reach a decision.
A news release issued by OPEC headquarters in Vienna on Thursday said the group, known as OPEC Plus, would meet again on Friday afternoon after a preliminary meeting of top oil ministers.
The immediate sticking point appears to have been disagreements over how the output quotas of one or more countries are calculated. Oil officials of the United Arab Emirates, for instance, are known to believe that they have been bearing a disproportionate burden of production cuts. The United Arab Emirates has big ambitions to expand its oil output and has been frustrated by OPEC constraints.
“The dispute over the baseline has upended everything,” said Helima Croft, an analyst at RBC Capital Markets, an investment bank.
These tensions most likely also reflect a realization by the group that it has reached a critical moment as demand recovers from the pandemic. OPEC Plus members are keeping around six million barrels a day of potential production in the ground under an agreement reached last year. A major question for the group is how to gradually release this oil into the market without depressing prices.
The tight grip the producers have kept on oil production has helped lift prices by around 85 percent since November to about $75 a barrel for Brent crude, the international benchmark, and $74 a barrel for West Texas Intermediate, the U.S. standard.
Analysts had expected this meeting to produce a gradual easing.
“Traders expect a supply increase from OPEC Plus, but in a cautious manner that does not prematurely recall too much supply too soon,” Rystad Energy, a consulting firm, said in a note on Thursday.
Some of the group’s members, including Russia and the United Arab Emirates, lean toward increasing production while oil consumption is rising as economies recover from the pandemic.
Some oil officials also worry that keeping tight controls on production can be counterproductive because relatively high prices — some analysts are projecting they could eventually reach $100 a barrel — will encourage competitors like shale oil drillers in the United States to increase output, cutting into the market share of the OPEC Plus countries.
But Saudi Arabia, the world’s largest oil exporter, is known to favor caution. If the economic recovery stumbles because of new variants of the coronavirus, for instance, an oversupply of oil could force prices to drop.
Oil officials will also be keeping in mind the potential for an output increase this year and in 2022 from Iran, an OPEC member. Tehran is engaged in indirect talks with the United States on resuming the nuclear deal that President Donald J. Trump abandoned. If successful, these negotiations could lead to a lifting of the U.S. sanctions that have crimped Tehran’s oil sales.