OPEC+ agrees to major oil output boost as energy crunch bites

Cartel decides to add 648,000 barrels per day to market in July, up from 432,000 in previous months, amid intense pressure fueled by invasion of Ukraine

In this photo released by the Saudi Royal Palace, Saudi Crown Prince Mohammed bin Salman, speaks during the Gulf Cooperation Council (GCC) Summit in Riyadh, Saudi Arabia, December 14, 2021. (Bandar Aljaloud/Saudi Royal Palace via AP)
In this photo released by the Saudi Royal Palace, Saudi Crown Prince Mohammed bin Salman, speaks during the Gulf Cooperation Council (GCC) Summit in Riyadh, Saudi Arabia, December 14, 2021. (Bandar Aljaloud/Saudi Royal Palace via AP)

VIENNA, Austria — Major oil producers led by Saudi Arabia and Russia agreed on Thursday to open the taps wider than expected amid soaring prices and hard on the heels of an EU ban on Russian oil imports.

Analysts had foreseen OPEC+ producers sticking to their policy of modest output increases, as they have done since May 2021.

However, pressure has been rising for the 23-strong group to boost output further to try to stabilize prices, which have hit record highs since Russia invaded Ukraine, drawing heavy Western sanctions.

OPEC+ has decided to add 648,000 barrels per day to the market in July, up from 432,000 in previous months, it announced after monthly videoconference meetings that lasted about an hour.

“The meeting highlighted the importance of stable and balanced markets for both crude oil and refined products,” the cartel said in a statement.

Ahead of the meeting, speculation had swirled about a break in the agreement between the 13 members of the Organization of the Petroleum Exporting Countries, chaired by Saudi Arabia, and their 10 partners, led by Russia.

Fuel trucks line up in front of storage tanks at the North Jeddah bulk plant, an Aramco oil facility, in Jeddah, Saudi Arabia, on March 21, 2021. (Amr Nabil/AP)

The Wall Street Journal reported on Monday that OPEC was considering suspending Russia from the output deal. OPEC+ drastically slashed output in 2020 as demand slumped when the world locked down under the coronavirus pandemic.

They have increased output modestly to the tune of around 400,000 barrels per day each month since last year, resisting pressure by top consumers, including the United States, to open the taps wider, until now.

But Jeffrey Halley, an analyst at Oanda, said the move would not alleviate the crude supply crunch from sanctioned Russian oil, calling it a “huge disappointment to oil-consuming nations.”

“It seems that OPEC has thrown the US and Europe a few bones… whilst also maintaining OPEC+ unity,” he said. “Russia will walk away happy as prices will remain firm.”

Russia’s invasion of Ukraine has exacerbated concerns about oil supplies, sending prices to record highs this year.

As the economic screws have tightened around Russia, prices have further soared, putting pressure on the cartel to open the valves more widely and relieve the market.

President Joe Biden listens as he meets virtually with infant formula manufacturers from the South Court Auditorium on the White House complex in Washington, June 1, 2022. (Susan Walsh/AP)

European Union leaders agreed on Monday to ban more than two-thirds of Russian oil imports as part of a sixth package of sanctions on Moscow over the Ukraine war. Britain has already announced plans to phase out Russian oil imports by the end of 2022 and eventually stop importing its gas.

The United States, too, banned Russian oil and gas days after Russia’s invasion began on February 24.

The White House on Thursday praised Saudi Arabia for its role in securing the OPEC+ pledge to pump more oil and President Joe Biden lauded the Saudis for agreeing to a cease-fire extension in its eight-year-old war with Yemen that was also announced Thursday.

“Saudi Arabia demonstrated courageous leadership by taking initiatives early on to endorse and implement terms of the UN-led truce,” Biden said in a statement after the 60-day extension of the cease-fire was announced.

In a statement, White House press secretary Karine Jean-Pierre acknowledged what she said was Saudi Arabia’s role “in achieving consensus” within the oil producers’ bloc. She thanked the United Arab Emirates, Kuwait and Iraq as well.

Biden has decided to travel to Saudi Arabia in the coming weeks and is expected to meet with the kingdom’s crown prince, whom he once shunned for his brutality.

Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, called Thursday’s decision a “very unexpected development.”

White House press secretary Karine Jean-Pierre speaks during the daily briefing at the White House in Washington, June 2, 2022. (Susan Walsh/AP)

“It is rather a sign that the ice between Saudi and the US could finally melt after two years of freezing cold relations,” she said. “We may be at a political crossroads. If the US could strengthen its ties with Saudi, Saudi would pump more to make up for the Russian oil. That could isolate Russia even more, and change the course of the war.”

Ahead of the meeting, some analysts had predicted Saudi Arabia and the United Arab Emirates could fill some of the gap as Russia is hit by Western oil sanctions.

“Russia has now transformed into a pariah,” Seb analyst Bjarne Schieldrop said.  “More oil from Saudi and the UAE will allow the West to implement sharper bans forcing Russian oil exports lower while not blowing up the oil price.”

Several other OPEC+ members have been struggling to meet the output quotas, falling short month after month. Members of the G7 club of industrialized nations last week underlined OPEC+’s “key role” in the face of the tightening of international markets.

Soaring oil prices have stimulated the Gulf region’s economies, with Saudi Arabia recording its highest growth rate in 10 years over the first quarter of 2022.

OPEC was set up in 1960 and joined by the 10 partners through a 2016 declaration. Its mission is to “ensure the stabilization of oil markets.”

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