Image Source: TASS
In response to worries that a worldwide recession may reduce demand, the oil-exporting nations of the world have decided to raise output next month.
The Organization of the Oil Exporting Countries and its allies, which include Russia, often known as OPEC+, said on Wednesday that they would produce an extra 100,000 barrels per day in September.
This was the first OPEC gathering since US President Joe Biden’s trip to Saudi Arabia last month. The nation, which is the biggest oil producer in the group, was pushed by Biden to start pumping more.
Due to Western embargoes on Russian oil, the supply has been constrained globally for months, driving up prices. Even as millions of people experience skyrocketing fuel costs, the same prices have enabled the largest oil companies in the world to post record profits.
Although prices have drastically dropped since then, a gallon of ordinary gasoline in the United States reached $5 for the first time in June.
The price of Brent oil, the world’s standard, also reached a high of $139 per barrel in March, just after Russia invaded Ukraine. However, Brent is currently trading at around $100 because speculators worry that a worldwide recession will reduce demand.
Following OPEC’s announcement on Wednesday, the North American benchmark crudes, West Texas Intermediate and Brent, both initially increased as oil market participants anticipated a larger output increase. But by midday, prices had dropped by approximately 2%.
Hazel Seftor, a senior research analyst for global oil supply at Wood Mackenzie, claims that a production increase has minimal impact on the overall supply situation because it represents a very small portion of total output and is significantly less than rises in prior months.
Even if it was the group’s smallest increase since May 2021, when it started relaxing production limits implemented during the pandemic, Seftor continued, the increase “is notable in that it reiterates the OPEC+ group’s commitment to controlling the market.”
Oil stocks are “critically low”
However, OPEC raised worries on Wednesday that world supply may not be able to keep up with demand after 2023.
According to the report, the 38 members of the Organization for Economic Cooperation and Development, which comprises the largest economies in the world, have their lowest emergency oil stock levels in more than 30 years.
The International Energy Agency issued a study last month stating that “world oil inventories remain critically low” and that emerging nations were especially at risk.
OPEC+ has been attempting to undo production restrictions imposed during the pandemic when oil consumption plummeted for months.
The cartel agreed to raise production in June to make up for a decline in trade in Russian oil; in the same month, the European Union decided to reduce its imports of Russian petroleum by 90% before the end of the year.
OPEC+ decided to increase production by 648,000 barrels per day in July and August. However, a Reuters study from earlier this week indicates that several nations have fallen short of their commitments.
OPEC stated on Wednesday that “chronic underinvestment in the oil sector” was to blame for a large portion of its members’ “severely constrained” production capability.