OPEC discusses August crude output hike as oil markets tighten

Evgenia Pismennaya, Olga Tanas and Salma El Wardany June 22, 2021

Saudi Aramco tank farm

(Bloomberg) --OPEC+ is discussing whether to further boost production at next week’s meeting as the oil market looks increasingly tight.

Moscow is considering making a proposal that the group should ease a global supply deficit by increasing output, according to Russian officials familiar with the matter. Other OPEC+ nations are also discussing a potential supply hike in August, although specific numbers haven’t been mentioned, said a delegate.

Crude just hit $75 a barrel in London for the first time in two years as a strong recovery in demand from the coronavirus pandemic encounters supply constraints. The Organization of Petroleum Exporting Countries and its allies are already in the process of reviving about 2 million barrels a day of idle production from May to July, but influential voices in the market are asking for more as prices rise.

Saudi Arabia, the de-facto OPEC+ leader alongside Russia, so far hasn’t given any clear signal on the position it will take at next week’s talks. The kingdom has typically been cautious about rolling back the cuts, with Energy Minister Prince Abdulaziz bin Salman saying last week he wants to see clear evidence of a strong demand recovery before restoring more halted production.

The International Energy Agency has urged OPEC+ to start tapping its spare production capacity to bolster supply as demand rebounds. Goldman Sachs Group Inc. estimates the market is running a deficit of 3 million barrels a day, citing a lack of meaningful output growth. OPEC+ is still withholding as much as 5.8 million barrels a day from the market.

Nuclear talks between the U.S. and Iran have dragged on longer than expected, quashing expectations that sanctions on the Islamic Republic’s crude exports could be removed soon and adding further uncertainty to the OPEC+ deliberations. International oil companies and U.S. shale drillers are also keeping a tighter rein on their output than in the last price recovery, as their investors demand lower spending and better returns.

Moscow expects a global supply shortfall to persist in the medium term, two officials said, asking not to be named because the discussions aren’t public. The country’s final position going into the next OPEC+ gathering is still being shaped, another official said.

Russia’s Deputy Prime Minister Alexander Novak is “in constant contact” with Saudi Arabia, Kremlin spokesman Dmitry Peskov said at his daily conference call. So far, there is no need for the Russian and Saudi leaders to hold direct talks about OPEC+ policy, he said.

The biggest oil companies in Russia said this month that the OPEC+ coalition should keep ramping up output to satisfy rising global consumption. Novak met with executives from the companies on Tuesday, although the discussion mostly centered on domestic fuel markets, said people familiar with the matter.

Click here to subscribe to the World Oil energy newsletter, and receive exclusive industry news and analysis in your inbox each weekday.