The 23-nation coalition led by Saudi Arabia and Russia will probably rubber-stamp a hike of 400,000 barrels a day for March, officials from about half of the group’s members said, asking not to be named because the information is private. The coalition has stuck to its schedule for gradual monthly supply increases since forging the agreement in July.
Whether the cartel will actually be able to add this volume to the market is unclear. The revival of production halted during the pandemic has started to run into capacity constraints, with many members failing to hit their targets for reasons ranging from lack of investment to militant unrest.
As world fuel consumption heads back to pre-crisis levels, the struggles of Organization of Petroleum Exporting Countries and its partners have contributed to a rally in prices to a seven-year high just below $90 a barrel in London. That’s a growing source of pain for consuming nations as escalating fuel bills feed into inflationary pressure and a cost of living crisis afflicting millions around the world. U.S. President Joe Biden has sought to rein in gasoline prices but to little avail, a potential source of trouble ahead of mid-term elections in November.
“OPEC+ has been consistent and true to its output strategy of increasing production quotas by 400,000 barrels a day per month,” said Helge Andre Martinsen, a senior oil analyst at DNB ASA. “The headache for the oil market, and the OPEC+ group, is that several members are struggling to increase production from current levels.”
Last month, OPEC+ nations managed only two-thirds of their stipulated increase, according to the group’s data, with Nigeria, Angola and Russia all coming up short. While the coalition’s Gulf members such as Saudi Arabia and the United Arab Emirates have the capacity to bolster output further than their monthly quota allows to compensate for others, they’ve given little indication of willingness to do so, according to RBC Capital Markets LLC.
OPEC+ will gather online on Feb. 2 to make its decision.
The group’s shortcomings leave energy markets exposed when they face a range of dangers, from the possibility of a Russian invasion of Ukraine and the ensuing disruption to gas supplies, to recurrent outages in Libya and the risk of nuclear negotiations between Iran and other governments breaking down.
“The oil market is increasingly vulnerable to geopolitical risk,” said Martinsen.