As agreed upon by ministers at a meeting earlier this month, the Organization of Petroleum Exporting Countries and its allies (OPEC+) yesterday decided to move forward with a 648,000 b/d increase in its oil output quota for August.
Nigeria will pump 1.826 million barrels per day as per the agreed-upon quota, the same amount that it did in July.
The increase will end the now more than two-year process of theoretically bringing back to the market all of the close to 10 million barrels per day that OPEC and its non-OPEC partners withdrew in May 2020 in reaction to the Covid-induced slump in global demand.
The choice to follow the script and approve the rise of 648,000 b/d was made at a time when inflation rates are quickening, oil prices are rising, and global oil consumption is rebounding, all of which are causing supply-demand balances to become tighter. Last week, an Opec+ technical committee predicted a supply surplus of 1 million barrels per day this year, down about 400,000 barrels per day from the prediction it made just four months earlier.
Formally, the production restraint agreement is still in effect till the end of this year. However, the group will no longer have a road map to follow should the market require more supply in the upcoming months because production targets are set to return to pre-pandemic baseline levels in August.
Given that many in the group are unable to increase productivity much beyond what they are now producing, this could be a tricky situation.
In September, the OPEC+ group did intend to complete unwinding its cuts. The decision by ministers to speed up that process by one month at their most recent meeting was likely made in response to repeated requests from consumer nations like the United States for OPEC+ to increase output more quickly in order to help stabilize the rising price of oil.
Today’s front-month Ice Brent futures are trading at about $115 per barrel, up from $75 at the beginning of the year and $100 three months ago.
Although the August increase theoretically allows the organization to produce at pre-pandemic levels, in practice its output will stay much below that due to a mix of capacity restrictions, chronic underinvestment, infrastructural breakdown, and sabotage in some OPEC+ nations.
