ORGANIZATION of the Petroleum Exporting Countries and allies like Russia, known as Opec+, will proceed with plans to revive halted oil production after repeated delays, amid pressure from US President Donald Trump to lower oil prices.
In a surprise move that sent crude tumbling, the group led by Saudi Arabia and Russia will go ahead with the increase of 138,000 barrels a day in April, according to a statement posted on the group’s website. It will be the first in a series of monthly hikes to revive production halted for more than two years, which will gradually restore a total of 2.2 million barrels a day by 2026.
“This gradual increase may be paused or reversed subject to market conditions,” according to the statement. “This flexibility will allow the group to continue to support oil market stability.”
Crude traders had widely expected that Opec+ would once again delay the restart, which it had postponed three times since first announcing a supply road map last June. Oil prices are too low for the Saudis and many other members to cover government spending, and global markets are on track for a supply surplus later this year.
Brent crude dropped as much as 2.8 per cent to the lowest in almost three months following the Opec+ decision, which was first reported by Bloomberg. The international benchmark was 2.1 per cent lower at 71.26 a barrel as at 6.46 pm in London.
“The optics around any reinstatement of supply, even if incremental and small, will be seen as price-negative,” Harry Tchilinguirian, head of oil research at Onyx Commodities, said before the decision.
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The group’s choice may be yet another illustration of the sway of Trump, who last month called on the Opec to “cut the price of oil”. Saudi Arabian Crown Prince Mohammed bin Salman has pledged to invest US$600 billion in the US in a bid to strengthen the kingdom’s ties with Washington.
There are other reasons why the coalition may have opted to green-light the increase.
Co-leader Russia, hit by fresh sanctions in the final days of Joe Biden’s administration, may have more favourable conditions to ship barrels thanks to warmer relations with Trump. And Washington’s “maximum pressure” on Iranian exports could create a gap for other Opec+ nations to fill.
For now, the decision compounds the downward pressure on oil prices, which before Monday’s decision had already retreated more than 10 per cent since mid-January.
Global oil markets face a supply surplus of 450,000 barrels a day this year even if Opec+ keeps output flat, as rival supplies – from the US, Brazil, Canada and Guyana – overwhelms growth in consumption, according to the International Energy Agency in Paris. BLOOMBERG