EconomyFinancialOPEC + meeting to contemplate increased oil production

OPEC + meeting to contemplate increased oil production

The market expects the progressive increase agreed at the end of April to continue, after the strong cuts decided last year in the face of the COVID-19 pandemic.

Members of OPEC and their allies are meeting on Tuesday to decide how many barrels the group will produce over the next few months, with growing demand as a backdrop.

The market expects the progressive increase agreed at the end of April to continue, after the strong cuts decided last year in the face of the COVID-19 pandemic.

A few hours before the summit, optimism took hold of the market and at the beginning of the day a barrel of Brent from the North Sea for delivery in August was worth US $ 70.76 in London – 2.08% more than at the close of the previous day – while in New York the WTI for July rose 2.74%, to US $ 68.14.

OPEC + is an alliance sealed at the end of 2016 between the 13 states of the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and ten allies, including Russia.

The monthly monitoring committee of the group’s current production reduction agreement (JMMC) will meet first and then the ministerial summit will be held.

Participants will evaluate the current strategy, which consists of a progressive increase between May and July that adds up to almost 1.2 million barrels per day.

And they are likely to make a decision on the next installments starting in August.

Tensions between Moscow and Riyadh

The 23 members voluntarily give up producing more so as not to flood a market weakened by the health crisis.

But as prices return to early 2020 levels and demand strengthens, especially in Europe and the United States, they have a chance to reopen the taps.

The cartel maintained its forecasts at the beginning of the month and expects a rise of six million barrels per day this year compared to 2020, to the 96.5 million consumed daily on the planet.

The alliance, “which is currently in a very favorable situation,” according to Commerzbank analyst Eugen Weinberg, “should stick to its previous production increase plans,” a view shared by the market.

But nothing is certain at a summit of OPEC +, an organization used to surprises.

“The tensions between Russia and Saudi Arabia will always be at the center,” recalls Matt Weller of

Moscow “will undoubtedly push for faster production increases,” he adds, while Riyadh “should favor the most conservative path, invoking the epidemic in India and the arrival of Iranian oil at the end of the year.”

Iran’s return is coming

The market was rocked in May by a wave of covid-19 in India, the third country that consumes the most oil, behind the United States and China.

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The group is also on the lookout for other countries: Libya returned to producing one million barrels a day at the end of 2020 and Iranian production will return to the market in the more or less near future.

The Islamic Republic has entered into indirect negotiations with the United States in Vienna, through the mediation of Europeans, to revive an agreement on its nuclear program.

If the negotiations are successful, the lifting of some economic sanctions, such as the oil embargo in force since 2018, would clear the way for an increase in production of almost 1.5 million barrels a day compared to the current level of Tehran. with the one from three years ago.

A volume that does not impress Rystad experts, who estimate “that it will not be enough to respond to the increase in demand”.

As a result of all this, the conditions are in place to increase production again, “especially in August, when demand is strong.”

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