Oil: Higher OPEC+ Quotas Unlikely To Result In Additional Oil Production
Ellen Wald | Jun 30, 2022 10:22
It is unlikely that OPEC+ will decide to deviate from its existing oil production plans at today's meeting. Last month, it surprised the market by increasing production quotas by more than expected. However, most OPEC+ nations are already producing at their maximum capacities now, so even with higher quotas, we shouldn’t expect much more oil to come on the market from OPEC+.
Except for Saudi Arabia, the UAE, and Russia.
Russia/h2
Russia has been increasing production steadily to meet the demand for its discounted oil from customers in India and China. In May, it pumping 10.45 million bpd. It pumped 11.01 million bpd in November 2018 and almost 12 million bpd in April and May of 2020. According to OPEC+’s current schedule, Saudi Arabia’s quota will reach 11 million bpd in August. Even if it chose to pump at the maximum allowable, it would only add 550,000 bpd to the market.
UAE/h2
In May, the UAE produced 3.03 million bpd and its quota will increase to 3.17 million bpd in August. The UAE says it can produce up to 4 million bpd, though it has never produced at that rate.
Like Saudi Arabia, it is beneficial for the UAE not to produce at its maximum capacity, because once it hits that rate, it has no spare capacity to compensate for unplanned outages or to utilize in the event its national security is threatened.
There is little benefit to OPEC+ producing nations to increase quotas beyond pre-planned numbers when in reality, production won’t increase. In addition, Saudi Arabia and the UAE do not believe that additional barrels from them would bring down oil prices because the real culprit for rising prices is the Russia/Ukraine war.
The problem will be explaining this to the Biden administration when the US President arrives in Saudi Arabia next month. It is clear that world leaders have difficulty grasping the particulars of oil production vs. oil production quotas, as was evidenced by a comment from French President Macron this week at the G7 meeting. He was caught on video telling President Biden that the UAE was producing at its maximum capacity and Saudi Arabia could only increase production by 150,000 bpd.
This statement is not true—the UAE is producing at or close to its OPEC quota and Saudi Arabia can only increase production by 150,000 bpd under the current quota. Both countries are capable of producing more, and they may do so when their production quotas increase in August.
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