OPEC+ allied countries advance output increase decision in meeting
In a significant shift from previous years, the Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+) have decided to increase oil production in 2025, aiming to capitalise on a steady global economic outlook and healthy market fundamentals.
The group's decision, which involves an increase of 548,000 barrels per day in August, is a response to factors such as low oil inventories and healthy market conditions. The move also reflects OPEC+'s focus on regaining market share, according to Saxo Bank analyst Ole Hansen.
The shift in strategy comes after OPEC+ curbed production in 2022 to support the market during a period of supply disruptions and high demand. However, with the global economy improving and market fundamentals strengthening, the alliance has started to reverse these cuts.
OPEC+, consisting of 12 OPEC nations and their allies, initiated output cuts in 2022 to support prices. Despite doubling the quotas in May, the alliance's production increased by only 200,000 barrels per day. This decision to further increase production is a testament to the group's flexibility to adjust supply based on evolving market conditions.
The meeting, which is taking place virtually, is expected to be attended by representatives from Saudi Arabia, Russia, Iraq, United Arab Emirates, Kuwait, Kazakhstan, Algeria, Oman, and the OPEC organization.
The decision to increase production is not without its challenges. The ongoing conflict between Iran and Israel has raised concerns, but so far, there have been no supply disruptions. If Iran's ability to produce and export oil gets disrupted, there might be a continued rapid production increase, according to Saxo Bank analyst Ole Hansen.
The Israel-Iran conflict, however, is unlikely to impact the decision of the alliance, according to UBS analyst Giovanni Staunovo. Analysts expect the "Voluntary Eight" (V8) nations to decide on another output increase of 411,000 barrels per day in the upcoming meeting.
The increased production is expected to have a minimal impact on current oil prices, as the decision is widely anticipated. However, Saudi Arabia might use another output hike to put pressure on members not adhering to agreed quotas, potentially causing lower expected oil profits due to lower prices.
The failure of some OPEC member countries, such as Kazakhstan and Iraq, to adhere to their output quotas is a factor supporting the decision to increase production. The group may justify its decision by citing low inventories and solid demand, as reported by UBS analyst Giovanni Staunovo.
In conclusion, OPEC+'s decision to increase oil production in 2025 is a strategic move aimed at capitalising on a steady global economy and healthy market fundamentals. The decision, however, is not without its challenges, with the ongoing conflict between Iran and Israel being a significant concern. Despite this, analysts expect the increased production to have a minimal impact on current oil prices.
- Algeria, a member of OPEC+, will be attended by its representatives in the upcoming meeting, as the alliance decides to increase oil production in 2025.
- Israel's ongoing conflict with Iran has raised concerns about potential oil supply disruptions, which could lead to a continued rapid increase in production, should Iran's ability to produce and export oil be affected.
- In the financial realm, Russia, another OPEC+ member, might use another output hike to put pressure on members not adhering to agreed quotas, potentially leading to lower expected oil profits due to lower prices, especially in the energy industry.
