OPEC+ again fell short of its oil production targets in May due to continued production declines in many OPEC members, according to an S&P Platts survey, as cited by Herman Wang, OPEC and Middle East Editor.
In April, OPEC alone missed its target of 2.7 million barrels per day, and although there was a slight improvement in May, the total was still well below quota. Last month, output in Nigeria fell to the lowest since Platts surveyed OPEC output, Wang noted.
Angola, Equatorial Guinea and Congo also produced well below quota last month, and most OPEC+ partners also produced less than expected. Russian production actually rose in May after falling in April.
OPEC+ agreed last week to increase production in July and August by 648,000 bpd instead of the originally agreed 432,000 bpd. Some observers took this as a sign of success for Western diplomacy, but the market reacted in a way that was perhaps counterintuitive, at first glance, with prices actually rising after the announcement.
Indeed, many OPEC members are struggling to meet their original production quotas, and it’s no secret. Only Saudi Arabia, the United Arab Emirates and Kuwait have spare capacity that can be quickly tapped to fill the gaps. However, they may be reluctant to do so because more spare capacity tapped means less spare capacity in the event of an outage.
“With only a handful of…OPEC+ participants with spare capacity, we expect OPEC+’s production increase to be around 160,000 bpd in July and 170,000 bpd in August.” , JP Morgan analysts wrote in a note, quoted by Reuters. , this week.
What all of this suggests is that, as the FT’s David Sheppard noted in a recent column, the world may need to prepare for even higher oil prices.
“China is reopening. People are flying again. Demand is going in the wrong direction,” Sheppard wrote. “All of these factors point to rising oil prices until a level is reached that reduces consumption, likely triggering an economic downturn large enough to reduce demand. In other words, a recession for many savings.”
By Irina Slav for Oilprice.com
More reading on Oilprice.com: