London (AFP) – Saudi Arabia, Russia, and five other members of OPEC+ are expected to raise their oil production quotas for September when they meet online on Sunday as the Middle East war continues to disrupt global energy supplies. The enlarged Organisation of the Petroleum Exporting Countries will likely increase production by 188,000 barrels per day, following several months of similar hikes, said Jorge Leon, an analyst at Rystad Energy. However, the September increase is likely to be the last in the current series of production adjustments, he added.
Between late 2022 and 2023, OPEC+ became concerned that oil prices were falling and agreed to cut oil production in three separate rounds, reducing total output by nearly six million barrels per day. But Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, Oman, and the United Arab Emirates — prior to their exit from the group on May 1 — then changed their strategy by gradually increasing production starting in 2025. A September increase would complete the unwinding of the second of the three production-cut packages introduced by OPEC+.
However, in reality, many OPEC+ members cannot produce as much oil as their official targets allow due to a “decline in production capacity,” making increasing targets less meaningful, said Giovanni Staunovo, an analyst at UBS. The Gulf countries have struggled to increase exports due to the near-paralysis of the Strait of Hormuz orchestrated by Iran during the war in the Middle East, despite a brief upswing in shipping traffic after a US-Iran memorandum of understanding was signed in June.
And in Russia, whose oil infrastructure has been repeatedly targeted by Ukrainian drone attacks, production is hovering at around nine million barrels per day, compared to a target of 9.8 million barrels per day. It remains unclear when the group will actually be able to increase its oil volumes, but some member countries, such as Iraq, have expressed a desire to significantly boost production. Currently, “the group is undergoing a process in setting maximum sustainable capacity levels for all member states,” according to Staunovo.
OPEC+ “faces potentially difficult talks over new production quotas” starting next year following the September increase, according to analysts at DNB Carnegie. “I don’t think cohesion is at risk at this very moment,” said Leon, warning, however, that the UAE’s withdrawal from the group in May has highlighted a weakness in this area. Explaining the move, Abu Dhabi stated it “serves our national interests and long-term strategic objectives.” The UAE had announced many projects and investments aimed at expanding its ability to pump oil in recent years, making it increasingly difficult to justify staying under strict OPEC+ production limits.
© 2024 AFP
