“OPEC +” is cautious in increasing oil production despite the pressures

“OPEC +” is cautious in increasing oil production despite the pressures
“OPEC +” is cautious in increasing oil production despite the pressures

Sources close to “OPEC +” said that the group’s decision on Monday to adhere to a plan to increase oil production moderately and gradually, despite the rise in prices to its highest levels in years, is due to reasons, including concern, over the possibility of a decline in demand and prices.
But three sources from “OPEC +” said, the other big reason is money. After seeing its income decline in light of the collapse in demand and prices caused by the pandemic in 2020, the “OPEC +” alliance of oil producers led by Russia and Saudi Arabia, the world’s largest exporter, returned to enjoying a boom in revenues.

“OPEC +” adopted record production cuts of about 10 million barrels per day in April 2020, or about 10% of global production, after the restrictions imposed worldwide to contain the pandemic crippled demand for oil and severely damaged prices.

“Everyone is happy” with the current oil price levels, said one of the “OPEC +” delegates, who asked not to be identified.

And “OPEC +” has faced calls this year from consumers such as the United States and India to increase production. The sources said that the group was considering a significant increase of 800,000 barrels per day, or together equivalent to about 1% of global production, before Monday’s meeting.

But by Monday morning, the signals sent by OPEC + sources before the remote meeting later in the day had changed and the most likely outcome was that OPEC + would stick to the current plan to increase production by 400,000 barrels per day.

Explaining why production was not increased further, a source from “OPEC +” said, “Because of previous lessons, OPEC has become more cautious because any hasty decision can lead to a sharp drop in oil prices.”

He added, “Political pressure from the United States and others has not yet been effective in changing this strategy.”

The sources said, “OPEC +” is considering the possibility that prices will give up their gains as quickly as they achieved them. This is what happened in 2018, when the price of Brent crude fell from above $85 in October to below $50 by the end of the year.

“The oil market is still fragile and there are no guarantees about price stability,” the source said.

Covid fears
Another source from “OPEC +” had said before Monday’s meeting, that the group was under pressure to increase production more quickly, but added, “We are afraid of the fourth wave of Corona. No one wants any big moves.”

Some members of the group also expressed their concerns that any additional increase in production might upset the balance of the market next year, which “OPEC +” expects to witness an excess of supply and fears that stocks will exceed the 5-year average in the second half of the year.

The price of oil rose above $81 a barrel after the meeting on Monday, which announced adherence to the existing production plan, and continued its rise after that to reach about $84 on Wednesday.

The additional income that the OPEC countries will generate will help them overcome the pain of last year’s price crash. OPEC generated $321 billion in oil exports in 2020, down 43% from its 2019 level, according to OPEC’s annual statistical report.

The Iraqi Oil Minister, Ihsan Abdul-Jabbar, said that Iraq, which has a population of about 40 million people and depends on oil for about 85% of its revenues, hopes that the price of a barrel will reach $ 120, but he continued in the “Energy Intelligence” forum yesterday, Wednesday, that the price of oil Between $75 and $80 a barrel is fair to consumers and producers alike.

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