Opec and its allies on Wednesday agreed to boost the group’s production quota for the eighth consecutive month, even as data showed that some countries were struggling to keep up with the monthly increases in output.
The Opec+ group, which has included Russia since 2016, said it would aim to raise production by another 400,000 barrels a day in March, continuing with the monthly plan agreed in July to gradually replace output cut at the start of the pandemic.
Large oil consumers including the US, India and Japan have regularly called on Opec+ to increase production at a more rapid rate, fearful that energy cost inflation could derail their economic recovery. But Saudi Arabia and other large members of the group have consistently stuck with the plan to increase output more slowly.
The gradual rises in production have helped oil rally strongly in 2022, surpassing a seven-year high in January to trade at more than $90 a barrel for the first time since 2014. Brent rose as much as 1.1 per cent on Wednesday to a high of $90.52 a barrel following the Opec decision, while US benchmark West Texas Intermediate was up as much as 1.6 per cent to $89.72.
The rally since the start of the year has been supported by resurgent demand and concerns that potential instability in Europe, the Middle East and north Africa might disrupt future supply.
But the failure of some Opec+ members to keep pace with the monthly increases has, analysts said, pushed prices even higher.
“There are concerns in the market, partly priced in, that Opec+ will not be able to produce what they say in the future,” said Bjornar Tonhaugen, head of oil markets at consultancy Rystad Energy. “Looking back, we find that Opec+ has failed to live up to its own pledge of increasing production according to plan.”
Opec+ production was 824,000 barrels a day lower than its target by the end of December, according to figures compiled by the group’s joint technical committee.
In December, Opec+ managed to increase output by only 250,000 b/d, according to the International Energy Agency, after Nigeria, Angola and Malaysia all underproduced. Russia also pumped less than its quota for the first time since the 2020 cuts were introduced.
“Opec+ is not in any rush to raise production too quickly or to backfill for members that might be struggling to meet their targets, no matter the concerns over Ukraine or the return of $90 oil,” said Christyan Malek at JPMorgan. “They have a plan they want to stick to and don’t want to be seen to be pushed around.”
Under-investment during the pandemic has led to problems when some producers have tried to restore supply. Nigeria, Angola and Malaysia had all faced “technical and operational issues”, the IEA said last month.
The missed targets have led some traders to question whether Opec+ — in particularly Saudi Arabia, United Arab Emirates, Iraq and Kuwait — would have sufficient spare capacity to meet global demand in the event of a sudden disruption to a leading source of supply.
Goldman Sachs, which has forecast oil prices to exceed $100 a barrel in the third quarter, expects Opec+ spare capacity to reach “historically low levels” of about 1.2m b/d by the middle of the year.
Malek at JPMorgan said those Opec members with spare capacity were reluctant to raise their own production unilaterally after the group had worked hard to build a cohesive position.
“They see higher oil prices as a symptom of under-investment, and higher prices are required to stave off an even larger price surge in the future,” he added.
Opec is scheduled to meet again on March 2.
