OPEC+ members agreed to increase oil production recently in response to the recovery of the oil market and in an attempt to ease production restrictions by the end of 2022.
The plan consists of increasing production by 400,000 barrels per day each month beginning from August, which will increase production by 2 million barrels per day by the end of the year. This is expected to continue next year, as the organization decided to extend the deal until the end of 2022.
The organization noted that oil demand is showing signs of improvement mainly thanks to the acceleration of vaccination campaigns across the world.
Previously, OPEC+ had agreed to cut production by 10 million barrels per day, mainly due to the impact of COVID-19 on prices. However, it eventually lowered the cuts to 5.8 million barrels per day.
Now that the world's economy is reopening as the massive vaccination campaigns across the world advance, demand for oil is expected to keep rising in the upcoming months. This is expected to keep pushing prices upwards, and it is not clear whether this planned increase in supply will put downward pressure on prices.
The decision came right after a public rift between Saudi Arabia and the United Arab Emirates, which was exacerbated by the UAE’s decision to reject a proposal by both Saudi Arabia and Russia to extend output restrictions until 2022.
This move followed the rejection of the UAE’s request to produce more crude oil. Concretely, the UAE demanded that its maximum production volume to be raised, which would allow the country to have a greater production quota.
Despite disagreements in the past, this was the first time that both countries, traditionally close allies, disagreed in public.
“We appreciate the constructive dialogue we had with his highness and OPEC,” commented UAE Energy Minister Suhail Al Mazroui. “I confirm that the UAE is committed to this group and will always work with it and within this group to do our best to achieve the market balance and help everyone. The UAE will remain a committed member in the OPEC alliance.”
The Saudi representatives chose to remain silent when asked for details about the negotiations with the UAE, claiming that it is a state secret.
Oil prices have increased significantly since the beginning of the year. The price of Brent crude is up 43% since the beginning of the year, hitting the $74 per barrel level, and is expected to cost $80 per barrel in the second half of 2021.
Despite this seeming positive for oil producers, this increase in prices could push up the inflation levels significantly, which would put global recovery at risk and could end up dampening demand.
Yesterday, Brent crude futures fell by 0.69%, closing the session at the 73.08 level. Similarly, West Texas Intermediate crude oil futures dropped by 0.93% during the session, closing at the 71.14 level.