Sources: OPEC + is cautious and the money behind the reluctance to pump more oil
By Alex Lawler, Ahmed Ghaddar and Olesya Astakhova
LONDON/MOSCOW (Reuters) – Sources close to OPEC+ told Reuters that the group’s decision on Monday to stick to a plan to increase oil production moderately and gradually, despite prices rising to their highest levels in years, was due, in part, to concerns about the possibility of a decline in demand and prices.
But three sources from OPEC+ said the other big reason was 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 ten million barrels per day in April 2020, or about ten percent 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 an OPEC+ delegate, who asked not to be identified.
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 one percent of global production, before Monday’s meeting.
But by Monday morning, the signals sent by OPEC + sources before the remote meeting later that 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, an OPEC+ source said, “Because of previous lessons, OPEC has become more cautious because any hasty decision can lead to a sharp drop in oil prices.”
“Political pressure from the United States and others has not yet been effective in changing this strategy,” he added.
The sources said that OPEC+ is considering the possibility that prices will give up their gains as quickly as they did. 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.
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. Nobody wants any big moves.”
Some members of the group also expressed 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 be more than the five-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, reaching 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 percent from its 2019 level, according to OPEC’s annual statistical report.
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 percent of its revenues, hopes that the price of a barrel will reach 120 dollars, but he continued at the Energy Intelligence forum on Wednesday that the price of oil is between 75 and 80 dollars The barrel is fair to consumers and producers alike.
(Prepared by Lubna Sabry for the Arab Newsletter – Editing by Mahmoud Salama)