OPEC+ will probably stick with a planned increase in its oil output target for March when it meets on Wednesday next week, several sources from the producer group said, as it sees demand recovering despite downside risks from the pandemic, geopolitics, and looming interest rate rises.
The vast majority of sources say no new decision is expected at the February 2 online meeting, although two OPEC+ sources say that with oil at a seven-year high of close to $90 a barrel, the group may be prompted to consider further steps.
One Russian source told Reuters the country was concerned the price rally might revive a boom in U.S. shale production.
“OPEC+ countries should be on high alert with this price level given the bullish forecasts for shale oil production in 2022,” the source said.
The source added that there is concern that high oil prices could hurt the profit margins of Russian oil refineries, according to US News.
Additionally, potential US and EU sanctions in the event of a Russian invasion of Ukraine could also weigh on Russia’s output and supply.
OPEC+, which includes the Organization of the Petroleum Exporting Countries (OPEC), as well as Russia and other allies, has raised its output target every month by 400,000 barrels per day (bpd) since August 2021 in an attempt to reverse record production cuts made in 2020.
Current plans would see OPEC+ do so again in March. “We are very likely to go for another 400,000 barrels per day,” one of the OPEC+ sources said. “There are no reasons against it.”
Geopolitics and the price surge in crude oil
The recent rally in oil prices has been stoked by geopolitical risks and fuel switching, rather than demand-side improvements alone, some Opec+ delegates told Argus.
Those sources point to four incidents that have rattled some of the group’s largest producers in January, with one being the protests in Kazakhstan and a 24-hour outage at the Iraq-Ceyhan pipeline.
Abu Dhabi intercepted a missile in an attack claimed by the Houthis on January 24, after a similar attack on January 17 killed three people and caused a fire at oil tanks in the UAE.
While the attacks didn’t appear to cause significant output losses, they are a threat to some OPEC+ producers with spare production capacity. This has caused actual production output from OPEC+ to be below targets.
OPEC+ missed its production target by 790,000 bpd in December as members such as Nigeria and Angola struggled to raise output, the International Energy Agency (IEA) said.
The bottom line: Several banks and analysts including Morgan Stanley and JP Morgan, expect oil prices to top $100 a barrel later in the year amid tight OPEC+ spare capacity and strong demand.
