OPEC+ member states underperformed their production target by 832,000 b/d in December, the group’s advisory committee’s analysis stated, S&P Global Platts reported. This casts uncertainty on whether the allies will increase supply in line with global demand, S&P noted.
Today’s committee meeting to discuss March output levels will likely approve another 400,000 b/d hike in quotas. However, the market will be marginally oversupplied by 1.4 million b/d this year if members let up their production cuts as planned, S&P analysis showed.
According to Platts Analytics, UAE and Saudi Arabia hold 95% of the group’s additional capacity, but have no intention of infringing on allies’ quotas and risk the harmony within the alliance.
S&P reported that relief in US sanctions for Iran could lead to an ease in market tightness. At the same time, an official with the US Biden administration said that nuclear deal talks were nearing their final stretch.
An analysis prepared by the OPEC+ committee stated that the second half of the year will see demand surpass pre-pandemic levels with a “healthy recovery trend.” It noted that supply would exceed demand by 1.4 million b/d in Q1 and increase to 1.7 million b/d in Q2. The increase in production will ease market oversupply to 1.2 million b/d in Q3 and 1.1 million b/d in Q4.
The report notes that OPEC+ will continue raising production by 400,000 b/d monthly until it eliminates its pandemic-era cuts in late 2022. Libya, Venezuela and Iran (exempt from quotas) will continue their December output levels.
However, experts warned that significant uncertainties remain due to the Covid-19 Omicron variant, and “ongoing supply chain bottlenecks, recent central bank policy shifts to accommodate upside inflation, volatility in commodity markets, growing capacity strains from underinvestment in the oil industry, the challenge of high sovereign debt levels in many regions and geopolitical risks,” continue to threaten the oil market.
