The OPEC+ group of oil producing nations is poised to agree to a production increase this week as it looks to add more supply as prices continue to recover from 2020 lows, according to reports.
“There’s a widespread view within the group that the market can absorb additional barrels,” Bloomberg reports, citing people familiar with the deliberations. “While the usual differences are present — with Saudi Arabia cautious and Russia keen to open the taps — all sides are ready to increase production, they said, asking not to be named because the information was private.”
“That could put the group on track to implement the majority of the 1.5 million barrel-a-day output increase that’s up for debate on Thursday,” Bloomberg added.
Those production increases would work to keep prices from continued rapid growth – and add to the revenues of OPEC+ members just as the global economy begins to recover.
Last week, Bank of America (BofA) Global Research hiked its forecast for Brent crude oil prices for this year, citing tighter supplies due to the Texas freeze and OPEC+ output curbs and unmatched global monetary stimulus. BofA now expects Brent crude oil to average $60 per barrel in 2021, up from a previous estimate of $50. BofA also forecasts West Texas Intermediate (WTI) crude prices to average $57 a barrel this year. The bank also noted that Brent prices could “temporarily spike to $70 a barrel in the second quarter of the year.”
An agreement to hike OPEC+ supply “would be the latest sign that the global economy is recovering from the damage wrought by the coronavirus pandemic. The cartel has endured a year of pain, dominated by the deepest output cuts in its history. But the sacrifice has paid off, reviving oil prices back to pre-crisis levels above $60 a barrel,” Bloomberg adds.
Meanwhile, as Reuters reports, the U.S. shale industry, which is not part of OPEC+, is unlikely to see the same benefit.
“The once-brash U.S. shale industry, which spent profusely in recent years to grab market share, is now focused on preserving cash, putting it at a disadvantage to low-cost OPEC producers as the global economy begins to gear up again,” according to Reuters. “Prior to the pandemic-induced downturn, OPEC countries led by Saudi Arabia restrained their production, eager to bolster prices to fund national budgets dependent on oil revenue. Shale drillers took advantage, boosting U.S. output to a record 13 million barrels a day…But attendees of the year’s top energy conference made clear that even with a buoyant, $60-per-barrel oil price, shale will not come roaring back from the Covid-19 pandemic as it did from the 2016 downturn.”
