OPEC to increase oil production as economies recover and prices rise
OPEC oil cartel and allied producing countries plan to restore 2.1 million barrels per day of crude production, balancing fears that COVID-19 outbreaks in some countries will undermine demand against rising energy needs in recovering economies.
Energy ministers made the decision at an online meeting on Tuesday.
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Saudi Energy Minister Prince Abdulaziz bin Salman said recent market developments proved that the agreement to gradually increase production, reached in April and reconfirmed on Tuesday, was “the right decision”. There are still “clouds on the horizon” regarding the recovery and demand for energy, he said.
The cartel has decided to stay the course decided in previous meetings to increase production by 2.1 million barrels per day from May to July. The group plans to add 350,000 barrels per day in June and 440,000 barrels per day in July. Saudi Arabia is also gradually adding 1 million barrels in the voluntary cuts it has made beyond its group commitment.
Saudi Arabia-led combined OPEC Plus member group and non-members, foremost Russia, faces concerns over new outbreaks of COVID-19 in countries like India , a major consumer of oil, which will hurt global demand and weigh on prices. Oil-producing countries have made drastic cuts to support prices during the worst of the pandemic downturn in 2020 and must now judge how much more oil the market needs as producers slowly add more production.
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But prices rallied, closing at multi-year highs on Tuesday, and recoveries in the United States, Europe and Asia are expected to increase energy demand in the second half of the year as people travel more and use more fuel. The driving season in the United States began over Memorial Day weekend and an increasing number of Americans have been vaccinated, leaving people feeling freer to travel and to take longer trips by car.
On Tuesday, the benchmark US crude price rose 2% to $ 67.72 a barrel after jumping nearly 4%. Brent crude, the European standard, traded up 2.7% at $ 71.17 but closed at $ 70.25 a barrel. Prices were the highest in two years for Brent crude and in nearly three years for US crude.
Oil prices edged up on Wednesday as benchmark US crude rose 19 cents to $ 67.92 a barrel. Brent crude rose 25 cents to $ 70.50 a barrel.
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An additional factor complicating market estimates is the possible return to the market of more Iranian oil, depending on the outcome of talks on Iran’s nuclear program. Paul Sheldon, chief geopolitical risk analyst at S&P Global Platts, said he expects a nuclear framework deal to be reached ahead of Iran’s June 18 elections, allowing the Iranian offer to ” increase by 1.05 million barrels per day between May and December levels.
Bin Salman said the prospect of more Iranian oil on the market was not discussed during the brief meeting, which he said lasted less than half an hour.
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Oil prices have risen more than 30% since the start of the year. This has resulted in higher costs for motorists in the United States, where crude is about half the price of a gallon of gasoline. Vacation travelers paid the highest gas prices since 2014 at a national average of $ 3.03 per gallon, $ 1.12 more than last year. Prices in the western states were even higher; Californians paid $ 4.20 a gallon.