OPEC+ has agreed a modest increase in its oil production targets next month, following a meeting earlier today, despite Western pressure to significantly ramp up supplies.
The organisation, which consists of the Organization of Petroleum Exporting Countries and allies including Russia, has committed to boosting output by a further 432,000 barrels per day.
This is in line with existing, gradual plans to unwind curbs made in 2020 when the pandemic hammered global demand expectations.
The group has consistently ignored Western calls to significantly speed up increases of oil production with requests from both US President Joe Biden and the Prime Minister Boris Johnson falling on deaf ears.
However, OPEC+ has also persistently failed to reach its own raised output targets since the start of the year, with multiple members missing pledged increased production quotas.
This is a consequence of capacity issues, alongside fears of both a supply glut and antagonising key member Russia – with the bloc committed to neutrality following the invasion of Ukraine.
Two sources present at the meeting told news agency Reuters that delegates completely avoided any discussion about sanctions on Russia, wrapping up talks in near record time of just under 15 minutes.
These factors have contributed to supply shortages and elevated concerns of disruption this year, helping to drive oil prices above the $100 milestone across both major benchmarks.
Following multiple rallies, which saw Brent Crude prices peak at a 14-year high of $139 per barrel in March, the International Energy Agency agreed last month to release record volumes of oil stocks to help to cool prices and offset supply disruptions from Russia.
The pledged flooding of the market with 240m barrels caused prices to drop significantly, while lockdowns in China have continued to weigh down prices in recent weeks.
However, the prospect of fresh rallies is increasingly plausible, with the European Union (EU) leaning towards phasing out Russian oil imports over the next six months.
This will be a key feature in a sixth package of sanctions against Russia, as it ramps up pressure on the country following its invasion of Ukraine.
Callum Macpherson, Investec’s head of commodities, argued the planned embargo represents a massive logistical challenge for oil markets.
Commenting on the possibility of Russia pivoting to non-European buyers, he said: “Re-routing Russian output from Europe to willing buyers in Asia, in the presence of sanctions, is already so challenging that even Russia has admitted its production will decline significantly. This problem will likely get worse. This leaves EU members competing with other consumers for the remaining available supply.”
He also suggested that OPEC+ “continues to view this as a problem of the West’s own making”, rather than as a fundamental supply issue that it should respond to.
When it came to supply difficulties, he considered the matter to be both political and practical.
Macpherson explained: “The reality is that amongst its members, only Saudi Arabia and UAE have capacity to increase supply significantly. If they were to do so, the ensuing falling out with Russia could bring an end to OPEC+.”
Earlier this week, OPEC Secretary General Mohammad Barkindo warned it was not possible for other producers to replace Russian exports of more than 7m barrels per day.
“The spare capacity just does not exist,” he said.
Brent Crude is currently trading at 109.60 per barrel, with WTI Crude priced at $107.00.