BAKU, Azerbaijan, May 6. The oil market is more constrained on the supply side than OPEC+ makes out, Trend reports with reference to Capital Economics, the UK-based research and consulting company.
At its meeting on May 5, OPEC+ raised its quota for crude oil production by 432,000 bpd in June. Specifically, the quota for the ten OPEC countries subject to output caps (OPEC-10) will rise by 275,000 bpd, while the quota for non-OPEC countries, which includes Russia, will rise by 157,000 bpd. By raising quotas once more, OPEC+ stuck with its plan to unwind pandemic-related production curbs by the end of this year.
“OPEC+ suggested there was no need to deviate from its plan, given that the “fundamentals and consensus on the outlook” point to a balanced oil market. But the reality is that oil prices remain high at well over $100 per barrel, and there continues to be significant backwardation in futures prices for oil, which would suggest the market is more constrained on the supply side than OPEC+ makes out. In any case, the decision by OPEC+ to raise its output quota in June is only as relevant as its ability to meet that quota. In recent months, it has failed to do so. In April, OPEC-10 produced 24.4m bpd, according to Reuters survey data, nearly 1m bpd less than the permitted 25.3m bpd. Below-target production by Angola and Nigeria due to under-investment continued to be the main reason for disappointing OPEC-10 supply,” the company said in its latest report.
Going forward, experts from Capital Economics think that OPEC+ will raise crude oil production this year, despite falling Russian output, but the group will fail to fully realise its planned production increase.
“Accordingly, we forecast oil prices to remain high and to settle at around $100 per barrel by year-end. One upside risk would be the EU banning EU companies from being involved in the transportation of Russian oil, as proposed by the European Commission in its sixth round of sanctions on Russia. This could potentially result in less Russian exports to non-Western countries than we currently expect,” the company said.
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