The Saudi-led OPEC+ group of oil producers, which includes Russia, said on Thursday it would stick to its planned oil output hikes in August, pushing off a debate on policy from September onwards as prices have risen on tight global supplies and worries that the group has little ability to pump more crude, Reuters reports. The agreement sees OPEC+ countries collectively raising their output production by 648,000 barrels a day, the Wall Street Journal reports.
The group met for the fifth time since Russia invaded Ukraine, which sent oil prices above $100 a barrel for the first time in eight years. The meeting comes just a few weeks before President Biden is set to visit Saudi Arabia.
Per the WSJ:
“The increase in production levels for August match what the broader alliance, called OPEC+, agreed on for July. Before this, OPEC+ rolled out monthly increases of 432,000 barrels a day in oil production that the alliance agreed to last year as part of a plan to raise output to prepandemic levels. It had rebuffed repeated calls from the U.S. and other major oil-consuming nations to pump more oil to help tame prices.
“Then in early June, OPEC+ announced a bigger-than-expected production increase plan for July and in August, allowing Saudi Arabia to potentially pump more crude, helping set the stage for Mr. Biden’s visit to the kingdom amid efforts from both sides to try to reset their strained relationship…”
All eyes are on Saudi Arabia entering August and the next OPEC+ meeting. Saudi Arabia’s spare production capacity is not fully known to outsiders, and will be tested if the Kingdom attempts to pump at maximum capacity.
Writing in Bloomberg, Javier Blas notes:
“If the oil market was a religion, its central article of faith would be the maximum production capacity of Saudi Aramco, a tenet based on confidence in what we hope to be true and belief in properties we have not yet witnessed. The market is about to have its epiphany. Aramco…claims it can sustainably pump 12 million barrels a day, well above the kingdom’s OPEC+ August target of 11 million barrels. For the global economy, Saudi spare capacity is the last line of defense against more energy inflation. But apart from a few top company executives and a handful of Saudi royals, no one knows for sure whether Aramco can deliver. The rest either have blind faith in Aramco — or simply don’t believe.”
