Over the weekend OPEC officials along with other non-OPEC countries met to discuss the possibilities of increasing oil production globally now that the market has rebalanced and there is no longer a surplus of oil burdening the market. Over a year and a half ago, OPEC, Russia and other major oil producing countries agreed to cap oil production by 1.8 million barrels per day in an attempt to rebalance the market. Unexpectedly, they achieved this joint goal and as a result, oil prices rebounded to 4 year highs.
In the run up to last weeks’ meeting, Iran, Venezuela and Angola opposed the idea of increasing oil production – a notion that originally stemmed from Saudi Arabia and Russia. Venezuela’s economic crisis has led to a huge drop in oil production over the last few years, causing OPEC’s ‘compliance’ rates to remain high. The renewed US sanctions against Iran have caused concerns there also, and market analysts anticipate that Iranian oil production levels will begin to drop.
The overall outcome of the meeting was that most members of the cartel agreed to increase output by 1 million barrels per day. However, many are criticising this notion as the group failed to allocate output increases across the cartel.
Venezuelan oil production has dropped 500,000 barrels lower than the agreed caps. Other members of the cartel are unable to increase production due to various reasons, and so increasing oil production by 1 million barrels per day is something many do not believe can take place, especially not as quickly as the market originally thought. In fact, it is likely that there will be little or no surplus of oil, rather that there will just be enough in the market to meet demand.
The future of oil markets is very uncertain, however it is likely that changes or increases to oil production on a global scale will be slow and minimal. With limitations in place for the majority of OPEC members, it is likely that oil prices will remain at their level until the year end.
Sources: Reuters, Bloomberg, the Guardian.