By Natalie DeCoste
OPEC is considering increasing the group’s oil output as the world begins to return to normal after the coronavirus pandemic.
The Saudi Arabian-led Organization of the Petroleum Exporting Countries, which controls about 50% of the global oil supplies, and its Russia-led allies are considering a modest boost to oil productions, increasing by roughly 500,000 barrels a day. The increase in output is possible because the price of oil is rebounding as the impact of the pandemic dies down.
Crude oil in the U.S. hit $73.65 and reached $75 a barrel in London for the first time in two years. Prices in the U.S. have roughly doubled since the end of October. Despite signs of economic recovery and a rise in fuel demand, supply constraints remain, put in place to artificially inflate prices when the pandemic hit.
Early last year, OPEC slashed oil production by 9.7 million barrels a day as the pandemic shrunk demand. Throughout 2020 and 2021, the group brought back some four million barrels a day which will be achieved by next month.
“[OPEC] has proven time after time that it is a robust and sustainable framework for global energy cooperation and a highly effective means for overcoming global challenges in this highly complex and dynamic industry… These efforts are bringing us step-by-step closer to bringing this pandemic under control, thereby helping accelerate the global economic recovery. Indeed, the latest market developments point to much better conditions and improved outlooks,” said OPEC Secretary-General Mohammad Sanusi Barkindo at the 135th Meeting of the Economic Commission Board (ECB) of OPEC.
Next week will be crucial for oil prices as OPEC will decide what to do about production. Saudi Arabia has not given any clear signal on the position it will take. In the past, the country has typically been cautious about rolling back the cuts to production. Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, said last week he wants to see clear evidence of a strong demand recovery before restoring production.
Global forces urged OPEC to increase production to bring supply back up in step with returning demand. Among these global actors is The International Energy Agency, which requested OPEC start tapping into its spare production capacity. The group said that it expects global oil demand in next year’s final quarter to hit 100 million barrels for the first time since late 2019. However, it also slashed its forecast for resurgent demand in the second half of this year.
The current outlook suggests that the OPEC meeting will focus on the 500,000 barrels a day increase, set to potentially occur in August. Sources also report that discussion will be had about additional similar supply increases to follow in the coming months.
