OPEC+ Sticks to Gradual Production Increase Despite Rising Ukraine Tensions

Maintaining Daily Production Increase of 400,000 Barrels in March... Russia, Angola, and Others Fall Short of Oil Output Targets

[Photo by Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] The Organization of the Petroleum Exporting Countries (OPEC) and the coalition of major non-OPEC oil-producing countries including Russia, known as 'OPEC Plus (OPEC+),' have decided to maintain their plan to increase production by 400,000 barrels per day in March, according to a report by The Wall Street Journal (WSJ) on the 2nd (local time).

Despite demands from some oil-consuming countries, including the United States, to expand the scale of production increases due to variables such as the Ukraine crisis and rising inflation, OPEC+ stuck to its gradual production increase policy decided at the July meeting last year. International oil prices surged immediately after the OPEC+ meeting decision but gave up a significant portion of the gains before closing.

On the 2nd (local time) at the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI) crude oil futures closed at $88.26 per barrel, up $0.06 from the previous trading day. Although it closed slightly higher, intraday prices rose as much as 1.6%, reaching $89.72 per barrel. On the same day, Brent crude oil futures for North Sea crude rose to $90.52 per barrel but closed at $89.16, down $0.10 from the previous trading day.

At the monthly meeting held via video conference on the same day, OPEC+ decided to maintain the existing policy of increasing production by 400,000 barrels per day in March. This policy has been in place for eight consecutive months since August last year.

OPEC+ decided to drastically cut production by 5.8 million barrels per day in March 2020, right after the COVID-19 pandemic began, in response to decreased oil demand. Later, at the July meeting last year, they set a policy to gradually restore production to pre-pandemic levels by increasing output by 400,000 barrels per day each month.

Oil-consuming countries such as the United States, Japan, and India are demanding that OPEC+ increase production at a faster pace. This is because high inflation continues globally, and if the Ukraine crisis worsens, supply and demand instability could increase further.

According to Eurostat, the statistical office of the European Union (EU), the consumer price inflation rate for January this year was 5.1%, significantly exceeding the market expectation of 4.4%, marking a record high for the third consecutive month.

It has been confirmed that some OPEC+ member countries are still failing to meet their production targets.

According to a report released by OPEC+ on the 1st, in December last year, OPEC+’s daily oil production was 824,000 barrels short of the original OPEC+ production target.

The International Energy Agency (IEA) also analyzed that as of December last year, OPEC+’s production increase was only 250,000 barrels per day, falling short of the target. The IEA pointed out that Nigeria, Angola, and Malaysia have not been able to produce oil at the target levels. These countries are reportedly struggling to increase production due to reduced investments during the COVID-19 pandemic period.

The IEA also noted that Russia’s production in December fell short of the target, marking the first time since the COVID-19 pandemic.

Regarding Russia’s production shortfall, some analyses suggest political interests are involved. An OPEC+ official stated that Russia would not agree to additional production increases for political gains from high oil prices. The political calculation is that the higher the oil prices rise, the harder it will be for the United States and others to impose sanctions on Russia.

Saudi Arabia, the leader of OPEC, is also reportedly aligning with Russia’s position due to concerns that cooperation with Russia could deteriorate.

Regarding the analysis that Nigeria and others are failing to meet production targets, Saudi Arabia, the United Arab Emirates (UAE), Iraq, and Kuwait could increase their production to meet the overall increase target, but such moves have not yet been observed.

Christian Malek, an analyst at JPMorgan Chase, stated, "Despite concerns that the Ukraine crisis and $90 oil prices could hurt oil demand, OPEC+ has no plans to quickly increase production or for other countries to compensate for Angola’s shortfall."

It has been confirmed that OPEC+ is still concerned about oversupply. In the report dated the 1st, OPEC+ maintained the policy of increasing production by 400,000 barrels per day and predicted that if oil consumption increases as expected, there will be an oversupply of 1.4 million barrels in the first quarter and 1.7 million barrels in the second quarter.

OPEC+ is also reportedly judging that the possibility of Western sanctions against Russia is low. The Wall Street Journal cited sources saying that OPEC+ views the possibility of restrictions on Russia’s oil and gas exports due to Western economic sanctions as low. Some sources said that OPEC+ did not even discuss the possibility of Western sanctions against Russia during the video conference on the day. However, there is also speculation that Saudi Arabia would intervene in the extreme case where the Ukraine crisis worsens uncontrollably and the supply of 700,000 barrels per day of oil supplied by Russia to Europe is cut off.

Earlier, Goldman Sachs predicted that if OPEC+ maintains its gradual production increase policy, oil prices would exceed $100 in the third quarter of this year.

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