Opec+ considers next steps ahead of key meeting

Opec and its non-Opec partners gather this week for what could be one of their more difficult recent meetings — to agree the path of output policy from September, after the last of the near 10mn b/d in production cuts imposed in May 2020 is rolled back this month.

Since 2020, the Opec+ alliance has largely followed a pre-determined course, bringing back in steady increments the 9.7mn b/d the group cut in response to the collapse in global oil demand triggered by the Covid-19 pandemic. Although the current production deal does not formally expire until the end of the year, the already scheduled 648,000 b/d increase in the group's overall production ceiling in August will return Opec+ partners' production quotas to pre-pandemic levels. That brings to an end the recent monthly production ceiling hikes the market has become accustomed to, and raises a simple question — what happens next?

Although oil prices have eased since topping $130/bl in March, they remain comfortably above $100/bl. Some consumer countries, most vocally the US, are calling for additional supply, with little apparent success. US president Joe Biden's visit to Saudi Arabia earlier this month failed to extract any concrete commitments from Mideast Gulf producers on boosting output, even though his advisers insist that their meetings with regional leaders gave them confidence that Riyadh and its Gulf Co-operation Council partners would take more steps to raise production in "the coming weeks".

But the Saudis, whose oil minister Prince Abdulaziz bin Salman held talks with Russian deputy prime minister Alexander Novak on 29 July, have made clear that any decision to raise output would only be taken in concert with other Opec+ producers, and only if they collectively felt the market was in deficit.

No consensus

With the 3 August ministerial meeting looming, there appears no real consensus among Opec+ delegates on what the group is likely to decide for September, with most saying that consultations have yet to formally begin. "Although the time is approaching, it is still really difficult to say what will happen," one delegate told Argus.

Nevertheless, several delegates said that they felt it was most likely that the group would opt to keep production steady in September, with one of them pointing to the fact that the June decision to expedite the quota hikes forward by one month meant the increase initially penciled in for September "was already done." Two other delegates said they felt a nominal increase in production for September would be discussed, although it was still unclear by how much. "It will depend on the situation of the market" going into the meeting, one said.

Any decision to hike output is likely to prove complicated, not least because of questions over many Opec+ countries' ability to raise production much beyond current levels — something that has contributed to the group's overall production falling so far short of its overall ceiling. Group production was 2.84mn b/d below the nominal ceiling in June, according to numbers collated by the Opec secretariat.

Two delegates said this lack of spare capacity could see future increases distributed among the handful of countries that still have some spare capacity — namely Saudi Arabia, the UAE, and to a lesser extent Kuwait — while presented publicly as an overall Opec+ increase, so as not to alienate any members of the group. Such an approach could win support, one delegate said: "If the decision will benefit the market, we may support the decision."

By Nader Itayim, Ruxandra Iordache and Bachar Halabi

The growing Opec+ shortfall