Oil prices steady, output unchanged as OPEC+ meeting stalls

The planned Monday meeting of the Organization of the Petroleum Exporting Countries and its allies has been postponed without a new date in sight.

The deadlock might be a blessing to Nigeria that is already backing an easing of output cuts by the producer group to push prices lower and more affordable for key consumers.

The Group Managing Director of Nigerian National Petroleum Corporation (NNPC) Mele Kyari, had said that oil prices were “very high” and had started to constrain both producers and consumers.

“Producers are aware that when your prices are too high, you lose your customers. You have to bring it to a level that your customers can afford,” Kyari said during a television interview.
Oil prices have risen more than 50 per cent in 2021, amid a recovery in demand buoyed by vaccine rollouts and OPEC+ supply discipline.

“The only way to pull down prices is to increase supply. So, that is what is going to happen. OPEC is going to intervene to see how we can bring down prices,” Kyari said.

Kyari said the rise in oil prices was hurting Nigeria, which relies heavily on fuel imports for its needs. Nigeria has four refineries with a combined nameplate capacity of 445,000 b/d, which are all offline after years of neglect, making the country fully reliant on refined product imports.

India, the world’s third-largest consumer of crude and a key customer of many OPEC producers, recently also renewed its call for the alliance to phase out its production cuts, saying the recent rise in oil prices was hurting its economy.

However, the oil production levels of the OPEC will remain unchanged for the time being, according to the delegates. The impasse between Saudi Arabia and the United Arab Emirate (UAE) has left an oil market thirsting for crude on tenterhooks since the talks began July 1, with many forecasters warning of a potential price spike if the 23-country alliance does not further unwind its production cuts.

The UAE is blocking a deal that would see the group raise production and extend the pact beyond April 2022, unless it gets a revision of its baseline for the production cuts. The UAE has not opposed to easing the cuts but wants its baseline to be revised up by around 700,000 barrels per day (bpd) from the current baseline level.

The UAE has a production capacity of some 4 million bpd; however, under the OPEC+ deal from last year, its actual output was capped at 2.59 million bpd until the end of 2020, rising to 2.74 million this year.
The coalition, currently withholding 5.8 million b/d of output, reconvened yesterday but could not reach a consensus. Yesterday, Brent Crude closed higher at $76.73 at 5pm local time while Nigeria’s Bonny Light was down by 0.6 per cent to close at $74.16 a barrel.

Failure to reach a consensus — all OPEC+ decisions must be unanimous — would revert the alliance to its existing production agreement, under which output quotas would remain flat at July levels.

That would squeeze an already tight market, as global economies continue to recover from the pandemic, boosting oil consumption.

The OPEC+ coalition was set to agree last week to boost collective crude output by 400,000 b/d each month from August to December and extend their supply management agreement through the end of 2022.

“Iraq supports the opinion to extend the OPEC+ production cuts agreement till December 2022 and the start of adding increments from August 2021, depending on the demand and needs of the oil market,” Ihsan Ismaael said in a ministry statement carried by state-run Iraqi News Agency.