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Oil: Higher OPEC+ Quotas Unlikely To Result In Additional Oil Production

By Ellen WaldCommoditiesJun 30, 2022 10:22
uk.investing.com/analysis/oil-higher-opec-quotas-unlikely-to-result-in-additional-oil-production-200524912
Oil: Higher OPEC+ Quotas Unlikely To Result In Additional Oil Production
By Ellen Wald   |  Jun 30, 2022 10:22
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It is unlikely that OPEC+ will decide to deviate from its existing oil production plans at today's meeting. Last month, it surprised the market by increasing production quotas by more than expected. However, most OPEC+ nations are already producing at their maximum capacities now, so even with higher quotas, we shouldn’t expect much more oil to come on the market from OPEC+.

Except for Saudi Arabia, the UAE, and Russia.

Russia

Russia has been increasing production steadily to meet the demand for its discounted oil from customers in India and China. In May, it pumped 9.29 million bpd, according to Platts. Alexander Novak, deputy Prime Minister said that he expects Russian oil production to increase by 600,000 bpd in June, which would be a significant increase, but it would still be below its OPEC+ quota.

It remains unclear whether Russian oil production will continue to grow. The IEA expects Russian oil production will drop by 2 million bpd by December as sanctions against it start to be enforced, but given the growing appetite for Russian oil in India and China, this forecast is likely too severe.

Saudi Arabia

Saudi Aramco (TADAWUL:2222) can produce 12 million bpd of oil. However, sustaining that high rate of production could damage its oil fields which would increase the risk of failing to meet supply obligations in the case of an outage or enemy military attack, so it is unlikely that Saudi Arabia will increase much beyond 11 million bpd.

Currently, according to Platts, Saudi Arabia is pumping 10.45 million bpd. It pumped 11.01 million bpd in November 2018 and almost 12 million bpd in April and May of 2020. According to OPEC+’s current schedule, Saudi Arabia’s quota will reach 11 million bpd in August. Even if it chose to pump at the maximum allowable, it would only add 550,000 bpd to the market.

UAE

In May, the UAE produced 3.03 million bpd and its quota will increase to 3.17 million bpd in August. The UAE says it can produce up to 4 million bpd, though it has never produced at that rate.

Like Saudi Arabia, it is beneficial for the UAE not to produce at its maximum capacity, because once it hits that rate, it has no spare capacity to compensate for unplanned outages or to utilize in the event its national security is threatened.

There is little benefit to OPEC+ producing nations to increase quotas beyond pre-planned numbers when in reality, production won’t increase. In addition, Saudi Arabia and the UAE do not believe that additional barrels from them would bring down oil prices because the real culprit for rising prices is the Russia/Ukraine war.

The problem will be explaining this to the Biden administration when the US President arrives in Saudi Arabia next month. It is clear that world leaders have difficulty grasping the particulars of oil production vs. oil production quotas, as was evidenced by a comment from French President Macron this week at the G7 meeting. He was caught on video telling President Biden that the UAE was producing at its maximum capacity and Saudi Arabia could only increase production by 150,000 bpd.

This statement is not true—the UAE is producing at or close to its OPEC quota and Saudi Arabia can only increase production by 150,000 bpd under the current quota. Both countries are capable of producing more, and they may do so when their production quotas increase in August.

Oil: Higher OPEC+ Quotas Unlikely To Result In Additional Oil Production
 

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Oil: Higher OPEC+ Quotas Unlikely To Result In Additional Oil Production

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Comments (5)
PG. Boong
PG. Boong Jun 30, 2022 16:05
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Good analysis. Like it
Ramlal Agarwal
Ramlal Agarwal Jun 30, 2022 12:09
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lovely analysis
Zahid Khan
Zahid Khan Jun 30, 2022 12:06
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Oil will come down to 100
THAKUR NEWS PATIALA
THAKUR NEWS PATIALA Jun 30, 2022 10:44
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perfect analysis future OPEC production increase or decrease
Stephen Hunter
Stephen Hunter Jun 30, 2022 10:44
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Ha any of us could be financial journalists
Daniel Peate
Daniel Peate Jun 30, 2022 10:37
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Change the quotaions of yearly production to safice
 
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