Despite OPEC+ Production Increase Decision, International Oil Prices Surge... "Saudi Arabia's Limited Increase Despite US Pressure"

US Department of Energy to Lift Production Cuts from July Despite Defense Department Pressure
Expectations for Summer Demand Recovery... "Many Variables Including COVID-19 and Electric Vehicles"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] Despite the announcement of increased production by OPEC (Organization of the Petroleum Exporting Countries) and major oil-producing countries including Russia, collectively known as OPEC Plus (OPEC+), international oil prices surged nearly 4%. The rise in oil prices was driven by a combination of factors, including the production increase being smaller than market expectations and optimism that oil demand will recover starting this summer. However, there are also many variables such as the worsening COVID-19 situation in Europe and various countries' eco-friendly policies, leading to forecasts that the recovery in oil demand may not continue in the medium to long term.

According to foreign media including CNBC on the 1st (local time), at the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI) crude oil closed at $61.45 per barrel, up $2.29 (3.9%) from the previous session. At the London ICE Futures Exchange, Brent crude from the North Sea also surged $2.12 (3.4%) to trade at $64.86 per barrel. Despite the announcement of increased production at the OPEC+ oil ministers' meeting held that day, international oil prices surged nearly 4%.

The main reason for this rise is analyzed to be the smaller-than-expected scale of the production increase. According to foreign media including the AP News, at the OPEC+ oil ministers' meeting held via video conference that day, member countries agreed on a gradual production increase plan that would progressively ease existing production cuts from next month through July. The members announced in a statement immediately after the meeting that they would increase oil production by no more than 500,000 barrels per day each month until July.

Russia's TASS news agency, citing sources within OPEC+, reported that member countries agreed to lift existing production cuts by 350,000 barrels per day in May and June, and by 400,000 barrels per day in July. If this plan proceeds as scheduled, Saudi Arabia’s current production cut of 1 million barrels per day will end in July. Prior to the meeting, reports indicated that the U.S. had directly pressured Saudi Arabia to increase production, leading to widespread speculation that Saudi Arabia might halt production cuts and announce a large-scale increase starting next month. On the same day, Jennifer Granholm, U.S. Secretary of Energy, stated on her Twitter account, "I had a phone call with the Saudi Energy Minister before the OPEC+ meeting, and we discussed the importance of supplying energy at reasonable prices to consumers and the need for cooperation among countries worldwide."

The U.S. Department of Defense also pressured Saudi Arabia. According to The Wall Street Journal (WSJ), senior U.S. defense officials told WSJ that they are considering withdrawing three Patriot missile batteries deployed in Saudi Arabia and the U.S. aircraft carrier strike group permanently stationed in the Persian Gulf.

Nevertheless, Saudi Arabia did not announce a large-scale production increase and said it would only lift production cuts in July. Abdulaziz bin Salman, Saudi Energy Minister, said at a press conference that "Saudi Arabia’s voluntary production cut of 1 million barrels per day will be gradually reduced until July." He emphasized, "This production increase decision is a very conservative measure, and there was no U.S. influence in the agreement." Iranian Oil Minister Bijan Namdar Zanganeh also stated, "It was decided to increase production by a total of 1.1 million barrels per day over the next three months until July."

However, with the COVID-19 spread still severe and the expansion of electric vehicle production amid countries' eco-friendly policies, there are analyses that the recovery in oil demand will be difficult to sustain. Torbjorn Tonquist, CEO of Swiss oil company Gunvor Group, explained in an interview with Bloomberg News, "In a situation with many variables, even OPEC countries do not yet believe in the demand recovery, and ultimately, they will continue to limit supply to support prices."

This content was produced with the assistance of AI translation services.