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OPEC+ Reconfirms its Production Adjustment Plan

Last week, OPEC and OPEC + members held their 30th joint technical and ministerial meeting. The monthly meetings were held amid constricted supply owing to unrest in Libya, sanctions on Russia, and OPEC’s struggle to meet its output quotas. Given the strong oil market fundamentals, OPEC+ agreed to stick to its existing output adjustment agreement for August 2022, adjusting overall monthly production upward by 0.65 mb/d. After the meeting, Oil prices fell by 0.9%, with Brent crude settling near $109.03 p/b on 30-Jun. Prices have since increased by 2.4%, closing Friday at $111.63p/b

Member countries have continually shrugged off calls for increased production, maintaining the view that the oil market is well balanced, that there is a narrowing gap between supply and demand, and the volatility in current prices reflects panic on the part of buyers. Factors such as inflation remain intensely high and leave oil prices susceptible to an economic slowdown. 

Also, data from OPEC showed that 20 oil rigs have been added by OPEC members between Q4-21 and May-22, totalling 400. However, tight oil product markets and high refining margins have prompted refineries to increase throughputs, boosting crude demand. There are expectations of higher demand given the summer holiday and driving season and further easing of Covid-19 containment measures.

As we advance, we expect oil prices to remain elevated in the short term. Following the ongoing conflict in Russia and Ukraine, other near-term global supply risks and inflationary market drivers continue to loom over prices. Possible G7 plans to revive the Iran nuclear deal as a workaround to the Russian oil deficit have thus far failed to deflate prices. In the long-run, foreseen slowed economic growth in Europe and the US is expected to damped demand. 

A bullish continuation at more conservative levels will materialise. Nonetheless, the status quo benefits some emerging and frontier market countries within the cartel, considering the capital flight and increased cost of borrowing for these economies.

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