LONDON – Opec and its key allies will meet today to decide whether to ramp up oil production in a bid to calm overheated global energy prices.
The market landscape has changed little since the previous September 1 meeting of the oil exporters’ cartel and its allies, together known as Opec+, with demand continuing to weigh on global crude supply.
Oil prices jumped above US$80 (RM334) last week for the first time in almost three years, handing the club, led by Saudi Arabia and Russia, both a boost and a dilemma.
The 23 countries in the group are expected to start their video conference meeting at 1300 GMT.
While higher prices benefit producers in the form of increased exports and revenues, there are medium-term drawbacks if rising prices stifle the fragile post-pandemic economic recovery.
The trend could also encourage new competitors into the market, making the exploration of new fields more profitable or even encouraging the trend towards renewables.
Opec has been sticking to an increase in production of 400,000 barrels per day (bpd), agreed in July, but could nonetheless be tempted to open the taps further.
US President Joe Biden’s administration urged such an approach in August, when National Security Adviser Jake Sullivan said the cartel was not doing “enough” to boost oil production.
Helima Croft, of RBC Capital Markets, predicted in a meeting preview note that the bloc will “come under increasingly intense pressure from Washington to open the production release valve and cap the upside”.
“With Europe and China in the throes of an escalating energy crisis, we think the odds are rising that the producer group will revisit their original tapering timeline and move to accelerate their output return,” she wrote.
Willing and able
In a study published last week, Morgan Stanley analysts noted the possibility of “demand destruction” if oil prices creep over US$80 a barrel.
Iraq’s oil minister has told the country’s state news agency the group is working towards keeping prices around US$70.
However, in the current market, Goldman Sachs sees Brent crude oil soaring towards US$90 within months.
To calm overheating prices, Opec+ countries could opt to increase supply volumes, but there are questions over their willingness – not to mention ability – to do this.
Nigeria, Angola and Libya “continue to face their perennial infrastructure, investment, and security challenges”, according to Croft.
Tamas Varga, an analyst at PVM Oil Associates, added: “Delayed maintenance works and lack of investment, partly due to the health crisis and partly because of the transition from fossil fuel to renewable energy, are to blame for these failures.”
Opec secretary-general Mohammed Barkindo gave mixed signals while speaking on the sidelines of a technical meeting on Wednesday.
He said Opec’s strategies “have helped eliminate the market’s stock overhang” but at the same time recognised the “need for incremental increases to address demand”. – AFP, October 4, 2021
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