The November 4 decision by the Organization of the Petroleum Exporting Countries and its collaborators — collectively known as OPEC+ –– to stay the course on crude oil production surprised few and disappointed many. Officials from leading oil-consuming nations, including the U.S., Japan and India, want the group to relax its production restraint by more than the scheduled 400 Mb/d in December. They see extra crude supply as an antidote for high prices that have been hampering recovery from the global economic slump caused by the COVID-19 pandemic. But OPEC+ leaders made clear that they’re in no mood to accelerate their phase-out of production cuts. They know the market pressures now elevating crude prices won’t last forever and can change unexpectedly. They also face internal strains that might weaken the quota discipline that has kept the group’s supply management intact, despite the occasional upset, for nearly five years. One of those strains is the number of OPEC+ participants already producing as much crude as they can while falling short of existing ceilings — a number that grows as the ceilings rise. Today’s RBN blog looks at oil-market expectations underlying OPEC+ members’ cautious approach and at the growing divide among those unable to keep up with output targets and the relatively few but volumetrically overpowering counterparts with capacity to spare.
In the tug-of-war between consumers and supply managers over crude oil production, OPEC+ leaders are taking the long view — both backward and forward. They remember the painful price crash that followed their mid-2014 decision to raise production when crude prices were even higher than they are now, which we blogged about in Crying Time At OPEC? In fact, it was in response to that stubbornly oversupplied crude market that OPEC and cooperating oil exporters began limiting their production at the start of 2017 to hasten the market’s rebalancing (Is This The Real Life? Is This Just Fantasy?). It is easy to lose sight of how long OPEC+ supply management has been in place, given how recent memory tends to be dominated by the pandemic-related swoon of the oil market and by the exporter group’s sometimes rocky responses to that surprise, which we summarized in Third Dimension. But it’s easy to see that the OPEC+ collaboration, at times held together with concessions and compromise, succeeded in keeping supply in check while demand recovered — to the extent that speculation has risen about when crude prices might once again exceed $100/bbl (How Long Can This Keep Going On?).
With spot Brent crude trading above $80/bbl through all of October and West Texas Intermediate crude within that range during the last three weeks of the month, consumers’ appeals for new supply are understandable, even predictable. Before their early November videoconference, however, OPEC+ decision-makers had good reason to worry that the market might shed its price-hoisting pressures fairly soon on its own. October projections from the International Energy Agency (IEA), U.S. Energy Information Administration (EIA), and OPEC — all published before the OPEC+ meeting — indicated an oil market in 2022 much different from supply-challenged 2021.
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