OPEC+ Opens Oil Faucet, But Does Not Contain Price Increases

OPEC+ oil-producing countries renewed this Thursday (30) their commitment to open the tap more during the summer (northern hemisphere), but the increase in production will be insufficient to contain the increase in prices due to the War in Ukraine.

Representatives from the 23 countries agreed that “August production will be adjusted upwards by 648,000 barrels a day” as in July, compared with 432,000 barrels set in previous months, the alliance announced in a statement.

The cartel of the oil countries thus follows the objective agreed in June of increasing the daily supply.

So far and since 2021, the group has limited itself to moderately increasing its oil production quotas to gradually return to pre-pandemic levels.

“Political Theater”

However, efforts are not enough to compensate for the oil shortage due to the embargo agreed between the United States and the EU (European Union) on Russian fuel.

Since the beginning of the Ukrainian War on February 24, the price of Brent, the benchmark for crude oil in Europe, has increased by more than 16%. Its US equivalent, WTI, is up more than 17%.

This Thursday, around 12:40 GMT (9:40 am in Brasília), Brent reached US$ 115.63 (R$ 604.3) per barrel and WTI reached US$ 109.27 (R$ 571), prices still very high.

Faced with rising prices, France again asked exporters on Monday (27) to increase their volumes exceptionally.

The matter will also be on the agenda of US President Joe Biden’s trip to Saudi Arabia in mid-July.

“It’s political theater, the trip is not going to end with a significant rise above what has already been agreed,” says Edward Moya, an analyst at Oanda. Even if the alliance decided to give in, it would not have the capacity, adds the expert.

Many OPEC+ countries “are subject to international sanctions or suffer from production problems”, he recalls. Therefore, established quotas are rarely reached.

Russia, Iran and Venezuela

In the crosshairs of the United States and the EU since the invasion of Ukraine, Russia has joined countries that have suffered sanctions, such as Iran and Venezuela.

Libya, which is also a member of the alliance, is experiencing a serious political crisis between opposing governments, which affects oil production, its main source of income.

Other countries such as Nigeria, Congo and Equatorial Guinea also failed to meet their targets due to a lack of investment in the sector during the pandemic.

But model countries like the United Arab Emirates and Saudi Arabia are also struggling to increase production volumes, French President Emmanuel Macron said this week.

“If this is true, it means that OPEC+ oil production in July and August will not increase further despite the recent deal,” says Stephen Brennock of PVM Energy.

“Supply problems will continue to be the main oil problem today and prices will rise even more,” warns Ipek Ozkardeskaya, an analyst at Swissquote Bank. Unless fear of a recession causes prices to fall.