OPEC+ needs to be careful in implementing its policy because it needs to balance the market amid forecasts of softening demand in the first quarter of 2022, the UAE’s energy minister said.
“We are seeing in the first quarter [of 2022]…a surplus in the balance due to the demand softening,” Suhail al-Mazrouei told reporters on the sidelines of Africa Oil Week in Dubai. “We are seeing in the pandemic some hike in certain countries. We have to be careful. We have to balance and make sure we are doing the required volumes.”
Despite the low inventories and US pressure to pump more oil, OPEC+ ministers agreed on Nov. 4 to hike output as planned by 400,000 b/d in December, citing concerns about COVID-19 infections and demand recovery.
OPEC+ stood firm on boosting crude output quotas by the December increment despite prices holding on close to three-year highs. The December hike is in line with a July agreement to boost output by 400,000 b/d per month starting August, an increment that will add a total of 2 million b/d by end of the year.
S&P Global Platts assessed Dated Brent at $82.75/b on Nov. 5, a retreat from three-year highs of above $85/b in October, but still up 64% year to date.
Without OPEC+ discipline, oil prices could have doubled or tripled, Mazrouei said.
“Fortunately, we have OPEC+ that has managed the supply and demand,” the minister. “If it wasn’t there, you could see something similar to what happened to the gas or what happened to the coal.”
With oil demand still under pressure from COVID-19 infections in many parts of the world and expected seasonal weakness as the calendar turns to 2022, OPEC+ ministers on Nov. 4 maintained their plan, with Saudi energy minister Prince Abdulaziz bin Salman saying the group was “acting in a responsible way.”
Under the OPEC+ deal forged in July, the alliance is gradually relaxing output curbs at a pace far too modest for the US, whose officials had blamed the group for high gasoline prices. Key customers — India and Japan — also lodged complaints, saying an overheated market could derail their economic recovery from the pandemic.
Mazrouei said OPEC+ production is a collective effort and emphasized that countries lagging in pumping to their ceilings are expected to go back to their quota levels.
“Some of the countries are getting back to their production commitments,” Mazrouei said. “We will monitor that. Some of the countries have a balance to be corrected and they have corrected and now we are hoping that they will go back to normal.”
Several OPEC+ members, notably Angola, Nigeria and Malaysia, have been unable to pump at their quotas due to technical issues, maturing fields or internal instability.
That means the agreed 400,000 b/d increase is likely to be much smaller in reality, keeping the market tight, unless the countries with spare capacity make up for other members’ shortfalls.