The pressures from the United States and other countries to increase oil output have been increasing. However, OPEC+ members are unlikely to comply with international pressure for a quick increase in production. The group is worried about losing their market share and becoming less relevant as demand declines and new technologies emerge.
An OPEC+ meeting in Abu Dhabi on Sunday ended with no sign of an agreement to increase oil production, which is currently more than 1.5 million barrels per day (bpd) lower than the October 2018 level before the United States imposed sanctions on Iran and Venezuela. There was also no discussion about suspending Russia from participation in the output deal.
The United States has recently suggested that OPEC should increase oil output by 1 million bpd. Saudi Arabia, the de facto leader of the production cut deal, said last week that it would “do whatever necessary to keep the market balanced, but Saudi Energy Minister Khalid Al-Falih also said the government will not heed calls for an immediate increase in oil production.
Hussein Sayed, chief market strategist at FXTM, said in a note to clients the outcome of the Abu Dhabi meeting was not unexpected. The OPEC+ alliance did not release a statement following the conclusion of the two-day gathering and it did not provide a timetable for further consultations with non-member countries either. However, the group’s members are now scheduled to meet again in June 2020.
OPEC+ said it will continue consultations with its non-OPEC partners, but any decision on production increase would only be taken at a meeting following comprehensive assessments of oil market conditions, Sayed wrote. This has been seen as an attempt to not anger the United States, which is exerting pressure on OPEC to increase output.
OPEC+ has spoken loud and clear – there are no plans to ramp up production anytime soon, the analyst said. The market seems split into two camps: those that believe that an oil price correction is imminent due to rising levels of US stockpiles, high US oil rig count and the US pressure on OPEC to increase output, versus those that believe low oil prices are here to stay.
OPEC+ members said they will continue consultations with their non-OPEC partners, but any future decision on production increase would only be taken following comprehensive assessments of market conditions. This is an attempt not to anger the US, which has been pressuring OPEC to increase output.
OPEC’s previous meeting in June ended without a decision on oil production after Saudi Arabia insisted that Iran be allowed to raise its output to pre-sanction levels before participating in any agreement. The group is due to meet again next month and is likely to repeat the same result unless a consensus is reached.
Sayed maintained that the oil price is likely to remain volatile and may break out of its current range as a result of further US oil production increases, tighter global oil market conditions, or due to geopolitical tensions between Iran and Saudi Arabia. It’s worth noting that OPEC+ members are not happy with Russia’s unwillingness to curb output. The group is also not confident about Iran’s output prospects given its reliance on China to evade US sanctions, the analyst said. Moreover, Saudi Arabia and Russia have been in talks over a long-term agreement to curtail output together, which could further pressure oil prices down, he added.