OPEC+ Boosts Output, US Oil to New Highs

As already planned from their April meeting, OPEC and non-OPEC producers decided on Tuesday to increase the collective global output in June.

OPEC

The Organization of the Petroleum Exporting Countries (OPEC) is essentially an oil cartel that has the power to affect prices, as it collectively accounts for almost half of the global output. It was founded in September 1960, currently has 13 members, and its de facto leader Saudi Arabia is the world's second largest producer behind USA.

OPEC+

What has come to be known as "OPEC+" was formed in late 2016, when the then 14 OPEC countries joined forces with 10 countries outside the organization, led by Russia, who ranks 3rd in global output levels. Their aim was to reduce production and thus boost prices, which had been falling in previous years.

On February 2016 USOIL had bottomed to levels not seen since mid-2003 ($26.03).

This led to the historic agreement of December 10th, in which these non-OPEC producers pledged to curb output by 558K barrels/day (bpd), just a few days after OPEC itself had announced a 1.2 million bpd reduction starting from January 2017.

Such policies continued for the next few years, with the last production cut announced during the pandemic, on April 12th 2020, just a few days prior to the WTI May Futures contract historicaly expiring in the negative. The affiliated club had agreed to reduce production by 9.7 million bpd for May and June and then start easing those restrictions.

Tapering started in July, when the reductions eased to 7.7 million bpd and then in January 2021 they were adjusted to 7.2 million bpd . In April, OPEC+ decided to continue increasing oil production from May through to July, with around 2 million bpd expected to return to the market during this period.

Latest Decision

This plan was reaffirmed with yesterday's decision of the 17th OPEC and non-OPEC Ministerial Meeting, as the club reconfirmed the existing commitment to gradually return 2 million barrels a day (mb/d) to the market, without offering any insights regarding its intentions beyond July.

OPEC+ stabilization efforts, along with increasing demand after the pandemic shock, has helped prices post an impressive recovery. USOIL has gained nearly 40% from the start of the year, closing above $66/barrel in the end of May. At the time of writing on Tuesday June 1st, it had rose to levels not seen since October 2018, going as high as $66.89.

Iran to Threaten Prices?

Tehran and Western powers have been in talks since April to revive the 2015 Nuclear Deal, which was scrapped when the US withdrew under the Trump administration. A successful conclusion would lift sanctions on Iranian oil, which could potentially put downward pressure on prices.

However, the talks are complex and slow and it appears that an agreement won't be easy to pull off before the June 18th Iranian Presidential Elections - which could perhaps further complicate discussions.

Furthermore, it seems that it is still unclear how much oil - and how fast – Iran can throw into the market. The Secretary General of OPEC Mr Barkindo does not seem worried about this prospect, tweeting on Monday his belief that this won't affect the relative stability that they have worked hard to achieve since April of last year.