OPEC member-countries will boost their production to 24.8 million bpd, including Saudi Arabia at 10.23 million bpd. Countries not within OPEC, but taking part in the plan, will increase their production to 16.1 million bpd, including Russia, with 10.23 million bpd.
“For Russia, this means that in February, we will end up at a level restoring about 85 % of the maximum cuts that were imposed in May-June 2020,” Russian Deputy Prime Minister Alexander Novak told “Rossiya 24” television. “It means 1.7 million bpd will be restored out of the 2 million bpd that were cut.”
Novak said hat by keeping the plan to boost production, participants believed that the impact of the new Coronavirus variant would not be significant.
“Our position is that for now there is a lack of clarity linked to the spread of the Omicron variant. Regardless of the fact that observations and analyses show that the level of infection is high, the level of hospitalisation is relatively low and will not depress demand,” Novak said in a government statement.
“We therefore believe that we have to carry out the obligations OPEC+ assumed in terms of raising production. And that is why this decision was taken. All countries were in favour of continuing in February an increase in production of 400,000 bpd. This will be the seventh month running in which we increase production by 400,000 bpd.”
The decision to boost production by no more than 400,000 bpd was also linked to expectations by OPEC experts of a surplus on oil markets in 2022. These experts came up with three scenarios – each of which provides for a moderate rise in demand against a background of increased supply from producer countries outside the OPEC+ deal.
According to the baseline scenario, demand for oil in 2022 will climb by 4.2 million bpd to 100.8 million bpd. And world-wide supply of oil will increase by 7 million bpd to 102.2 million bpd, including an increase of 5.2 million bpd from OPEC+ countries to total 49 million bpd. Other countries that are not OPEC members will increase production by 1.7 million bpd to total 48 million bpd. Taking into account 5.3 million bpd of condensate, produced by OPEC states, the oil surplus by the end of the year is estimated at 1.4 million bpd.
A supply surplus will become apparent from January 2022 at a level of 0.8 million bpd, with that level rising to 1.3 million pd in February and 2.1 million bpd in March.
According to that same baseline scenario, commercial stocks of oil of OECD countries at the end of 2021 will be 212 million barrels lower than levels through 2015-2019 (the November figure was 221 million barrels lower). This level of stocks will continue to rise, while remaining lower than 2015-2019 levels, up until December 20223, when it will reach 24 million barrels higher than the reference level.
Under a low scenario, demand for oil in 2022 will rise only by 3.8 million bpd to 100.3 million bpd. Countries that are not OPEC members and outside the OPEC+ deal will boost their production only by 1.6 million bpd to 47.9 million bpd. The surplus by the end of 2022 will total 1.8 million bpd and in January, it will already stand at 2.1 million bpd. In this instance, commercial stocks, already in October 2022, will be greater than 2015-2019 levels and at the end of the year will exceed the ceiling by 90 million barrels.
Under a high scenario, demand for oil in 2022 will rise by 4.4 million bpd to 101.1 million bpd and supply by 7.1 million bpd to 102.3 million bpd. Countries outside both OPEC and the OPEC+ deal will boost their production by 1.8 million bpd to 48.1 million bpd. In this instance, the surplus by the end of 2022 will total 1.2 million bpd – and in January 0.7 million. Commercial stocks will rise but will remain throughout the year lower than 2015-2019. By the end of the year, those stocks will be 13 million barrels lower than the reference level.
The OPEC+ decision was therefore an expected one and the session lasted no more than 30 minutes. Participants spent most of the time discussing countries that failed to meet their obligations under the deal. In its statement issued after the meeting, OPEC said that in the end ministers confirmed the critical importance of fully respecting the quotas and compensation mechanisms and the advantages of extending the use of compensation to the end of June 2022.
“Naturally, every country must stick to the confirmed levels,” Deputy Prime Minister Novak said. “If necessary, there needs to be a correcting mechanism in the schedule of compensation for those participants that do not meet their obligations in full.”
Markets responded to the decision by oil production countries to proceed with moderate production increases – at the end of the trading session, Brent crude reached $81 a barrel.
There was an unexpected positive reaction to the OPEC+ deal by its main critic – U.S. President Joe Biden’s administration.
“We welcome the decision today to continue the 400,000 barrels per day increase…,” White House spokeswoman Jan Psaki told reporters. “We believe that should help facilitate the global economic recovery.”
The ministers will next meet on 2nd February.