OPEC+ set a record on Wednesday, Feb. 2 for the shortest meeting it has ever held.
Within the span of 16 minutes, the group reviewed technical reports on the state of the oil market and voted unanimously to move forward with its planned 400,000 bpd quota increase in March.
If OPEC and non-OPEC cartel members indeed produce up to their quotas, the group would collectively provide 41.294 million bpd in March. (This total excludes production from OPEC members Venezuela, Iran, and Libya which are currently exempt from quotas).
However, it is not likely that OPEC+'s oil output will be that high in March—the group has been underproducing its total quota for at least a year.
Ongoing Output Gaps
Last winter, the underproduction was largely due to Saudi Arabia’s decision to voluntarily cut an extra 1 million bpd from its own oil output. However, between May and July 2021, Saudi Arabia ended those voluntary cuts and increased its production and exports. The July 2021 data from Platts shows that Saudi Arabia produced 9.48 million bpd that month, which was just below its designated quota.
On July 18, OPEC+ decided on a plan to increase production quotas by 400,000 bpd each month from August 2021, through September 2022. (It appears that OPEC+ did not meet the 400,000 bpd rise in September 2021, and maintained its August 2021 quota that month).
Between August and December 2021, OPEC+ lagged its quotas by an average of 610,200 bpd. In December, the gap reached 1.121 million bpd, even though OPEC+ increased its overall output by 310,000 bpd. The under pumping issues seem to lie mainly with Nigeria, Angola and Malaysia, rather than with mega-producers Saudi Arabia and Russia.
In light of the gaps between OPEC+’s quotas and its actual production, traders are rightly questioning whether OPEC+’s announced monthly quota increases are meaningful for the market. Even though OPEC+ raised supply quotas again for March, oil prices rose immediately after the decision was announced.
Brent passed the $90 per barrel threshold and WTI hit $89 per barrel, though both benchmarks later declined. Perhaps some traders were hoping for a larger increase, though there was no indication that this option was ever on the table for OPEC+.
The market impression is that Russia will struggle to maintain increases alongside its quota expansion over the coming months. This despite Russia having been within 100,000 bpd of its quota in recent months. Moreover, no serious evidence has come to light showing that Russia will be unable to keep up.
Keep in mind that as the winter thaws, production becomes easier in Siberia. Meanwhile, the word out of Russia on output is positive. According to Deputy Prime Minister Alexander Novak, Russia will increase production to 90% of its pre-pandemic level in March.
Traders will be watching closely to see if Russia fulfills this intention, although tensions over Ukraine and the potential for U.S. sanctions to impact Russian energy exports remain a major factor propping up prices regardless of supply and demand levels.