If OPEC+ went into maximum production mode then it would likely be a result of Saudi Arabia and Russia returning to fighting over market share and a race to price oil as low as possible.
That’s what Matthew Bey, a Senior Analyst at RANE, told Rigzone, adding that “this could send oil prices back below $50 per barrel, if not lower, as Saudi Arabia alone would add at least one million barrels per day in oil production”.
OPEC+ is however “unlikely” to go into maximum oil production mode over the next year, according to Bey, “as Russia has little interest in sending oil prices down as the war in Ukraine continues as the Kremlin views high energy prices as something that can undermine political support for the continued conflict in Ukraine and, in the case of the U.S., an issue that will hurt President Biden’s re-election campaign”.
“Saudi Arabia also appears to be making it clear that it wants to support oil prices at least around $80 per barrel, making it unlikely that they will reverse course and go into maximum oil production mode,” Bey added.
Bey told Rigzone that “a most likely path” towards the Saudis and OPEC+ going into maximum oil production mode “is if there is an energy shortage triggered by some sort of a conflict or accident that sends oil prices well above $100 per barrel”.
In its latest oil market report, which was released earlier this month, the International Energy Agency (IEA) pegged total OPEC+ crude oil production, excluding condensates, at 43.69 million barrels per day in June and 42.46 million barrels per day in July.
According to the report, OPEC+’s sustainable crude oil production capacity, which the report describes as capacity levels can be reached within 90 days and sustained for an extended period, is 49.41 million barrels per day.
In the report, Saudi Arabia was shown to have produced 9.98 million barrels of crude oil per day in June and 9.06 million barrels per day in July, while Russia was shown to have produced 9.45 million barrels per day in June and 9.4 million barrels per day in July. Saudi Arabia had the highest crude oil production level among OPEC+ members in June and Russia had the highest in July, the report outlined.
Saudi Arabia has the highest sustainable capacity among the OPEC+ group, at 12.25 million barrels per day, while Russia has the second highest, at 9.98 million barrels per day, according to the report.
“Market balances are set to tighten further into the autumn as Saudi Arabia and Russia extend supply cuts at least through September,” the IEA report noted.
“An ample OPEC+ spare capacity cushion of 5.7 million barrels per day means there is significant scope for the alliance to raise output later in the year,” it added.
“Additional supplies of heavy sour crude would allow refiners to boost activity and help ease product market tensions. But if the bloc’s current targets are maintained, oil inventories could draw by 2.2 million barrels per day in 3Q23 and 1.2 million barrels per day in the fourth quarter, with a risk of driving prices still higher,” the report continued.
In a statement posted on its website earlier this month, OPEC highlighted that the Joint Ministerial Monitoring Committee (JMMC) reviewed crude oil production data for the months of May and June 2023 “and noted the overall conformity for participating OPEC and non-OPEC countries of the Declaration of Cooperation (DoC)”.
“The committee will continue to closely assess market conditions noting the willingness of the DoC countries to address market developments and stand ready to take additional measures at any time, building on the strong cohesion of OPEC and participating non-OPEC oil-producing countries,” the statement added.
“The committee also expressed its full recognition and support for the efforts of the Kingdom of Saudi Arabia aimed at supporting the stability of the oil market and reiterated its appreciation for the Kingdom’s additional voluntary cut of one million barrels per day and for extending it for the month of September,” it continued.
“The committee also acknowledged the Russian Federation for its additional voluntary reduction of exports by 300,000 barrels per day for the month of September,” it went on to state.
The next meeting of the JMMC is scheduled for October 4, the statement revealed.
OPEC notes on its site that the DoC “constitutes an unprecedented milestone in the history of the Organization of the Petroleum Exporting Countries”.
“For the first time ever, OPEC Member Countries coordinated with 11 non-OPEC oil producing countries (now 10 – Equatorial Guinea became an OPEC Member in May 2017) in a concerted effort to accelerate the stabilization of the global oil market,” it adds.
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