OPEC+ did its job, but don’t expect it to disappear

The OPEC+ group of oil producers has completed its mission to restore all the oil it removed from the market during the depths of the Covid-19 pandemic — at least on paper. But don't expect it to disappear just yet.

The group of 23 oil-exporting countries met virtually on Thursday — well, those who could log into the room did, some were apparently unable to join the call — and agreed to add back the final tranche of the 9.7 million barrels a day of supply that they agreed to cut back in April 2020 in August 2022.

So that's it. Job done.

The meeting followed the pattern of its recent predecessors, notable only for its brevity. If you thought the ministers might take a minute to worry about a world teetering on the brink of recession, with fuel prices in many consuming countries hitting new highs, you'd be wrong.

The outcome — raising the combined production limit of the 20 members that have targets of 6,48,000 barrels a day — had been widely signalled since the previous gathering in early June. The fact that they have no hope of adding back that much supply doesn't seem to matter.

The group's actual production is so far removed from its target, that any notional change to that goal is wholly irrelevant. Combined output by those same 20 countries — Iran, Libya and Venezuela were granted exemptions from output cuts because of their individual circumstances — was more than 2.6 million barrels a day short of their goal in May, according to data from OPEC.

The group hasn't been able to pump as much as it promised for more than a year, and it has been falling further behind almost every month. The impact of sanctions and the shunning of Russian crude by some European buyers has had an impact on the country's production, which was down by more than 8,00,000 barrels a day in May, compared with February.

But Russia isn't the only country unable to pump as much as it's allowed. Only two members of the OPEC+ group met or exceeded their production targets in May. Nigeria and Angola, Africa's two biggest producers, were able to extract only three-quarters of the crude they were permitted.

So what's the future of the group now that it has notionally restored all the output it cut?

Don't expect it to dissolve. For all its irrelevance to actual supplies, even the non-OPEC producers, such as Russia, Kazakhstan, Mexico and Malaysia, appear to be in it for the long haul.

And why not? Membership doesn't cost them anything, unlike their OPEC counterparts. As one delegate put it to me several months ago when I asked what benefit he saw in OPEC+ membership, gaining access to the OPEC analysts is like having a free consultancy on tap. Add to that the fact that membership gives a seat at the table with some of the world's biggest oil exporters, as well as a voice, even if only a small one, in determining output policy.

And with every non-OPEC member pumping at capacity, output targets aren't a constraint on production.

President Joe Biden will ask the Gulf Arab countries to open the taps wider when he visits the region later this month, but that needn't trouble the rest of the group, as their taps are already open as wide as they'll go.

So for now, things will continue as they have been. There may be little point in the ministers gathering every month after they sort out their next step in early August, but perhaps there has been little point in them meeting all year.

Sketch: TBS

Julian Lee is an oil strategist for Bloomberg First Word. Previously he worked as a senior analyst at the Centre for Global Energy Studies.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.