For the sake of the tank: OPEC+ countries have increased their oil production quota again

The decision of seven OPEC+ countries to increase oil production by 188,000 barrels per day on June 7 is unlikely to have a significant impact on the market, experts interviewed by Izvestia believe. Oil prices now primarily depend on the dynamics of the Iranian conflict. In addition, due to the blockade of the Strait of Hormuz, the capabilities of most of the alliance's countries to increase production and supplies remain limited. Analysts believe that in the near future, oil prices will remain at the level of $90-100 per barrel.

What was agreed in OPEC+

On June 7, seven OPEC+ countries discussed the conditions and prospects of the global market and decided to increase the quota for oil production this month by 188 thousand barrels per day, compared with additional voluntary adjustments announced in April 2023. Then the key OPEC+ countries (Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman) decided to voluntarily reduce oil production by a total of 1.66 million barrels per day. Currently, the cartel members are gradually returning these volumes to the market.

The alliance stressed that "countries will continue to closely monitor and evaluate market conditions," and confirmed "the importance of taking a precautionary approach and maintaining full flexibility to increase, suspend or reverse the phase-out of voluntary production adjustments."

On the eve of the St. Petersburg International Economic Forum, Russian Deputy Prime Minister Alexander Novak said that the cartel is assessing the state of the market "for many years to come based on OPEC analysis."

— Of course, I think we need to see how the situation develops. It is desirable, of course, that this be leveled. Nobody needs market volatility," the official said.

According to Tamara Safonova, Director General of the Independent Analytical Agency for the Oil and Gas Sector, OPEC+ countries strictly adhere to their previous decisions regarding the implementation of the compensation schedule. The Middle East crisis has led to a shortage of resources and an increase in the cost of oil and refined products, she said. This is accompanied by a decrease in consumption in importing countries, which, in turn, may lead to a slowdown in global economic growth.

"In this regard, the use of the previously approved strategy to increase oil production by the alliance countries is, on the one hand, quite cautious, on the other hand, responding to current challenges and confirming the consistency of decisions taken," she said.

Dmitry Scriabin, portfolio manager of Alfa Capital Management Company, believes that the cartel has increased production, as the current level of oil prices contributes to the realization of the intention of the largest producers to increase their market share.

According to Valery Andrianov, an associate professor at the Financial University under the Government, in general, for OPEC+, this increase in production is more a symbolic step than a guide to action.

— This is a signal that the alliance is still alive and supposedly has its finger on the pulse. And if Hormuz is unblocked, it will be ready to restore supply volumes, competing with those suppliers who are taking advantage of the situation and increasing their supplies. This is primarily about the United States," he said.

How the oil market has changed since May

Since the last meeting of the OPEC+ deal participants, oil prices have decreased by 13.9%, from $107.9 per barrel on May 3 to $92.88 for the same volume on June 6. This is despite the fact that the Strait of Hormuz is still blocked by Tehran, and OPEC production has dropped to a new 36-year low. This was reported by Bloomberg, citing a study based on vessel tracking data, information from officials in the region, and estimates from Rapidan Energy Group, FGE NexantECA, Kpler, and Rystad Energy.

According to the survey, the organization's production in April decreased by 420 thousand barrels per day, to 20.55 million— the lowest level since 1990. In March, when Tehran first blocked the Strait of Hormuz, OPEC production had already collapsed by 8.6 million barrels per day, the largest drop in decades.

According to Alexander Novak, the global oil market is losing 10-12 million barrels every day due to the Middle East conflict, and approximately 600 million barrels have already been undersupplied. According to the head of Rosneft, Igor Sechin, the volume of oil falling out due to the Middle East conflict amounts to 16 million barrels per day.

According to Ekaterina Kosareva, managing partner of VMT Consult, several factors had an impact on the price of oil, including a decrease in demand from the largest importers of raw materials, such as China and India.

According to Kpler, in May, offshore crude oil imports may fall to the lowest level in a decade, amounting to 6.45 million barrels per day, compared with 8.1 million barrels per day in April. Vortexa, a ship tracking company, estimated May imports at 7-7.5 million barrels per day. This happened after the total volume of crude oil imports to China (not only by sea) in April fell by 20% compared to the same period last year, to 9.3 million barrels per day.

The consequences of the Middle East conflict are also forcing the Indian authorities to switch to austerity mode. The pace of fuel consumption in India may show the worst result in a decade, with the exception of pandemic 2020.

According to Kpler's forecast, the growth in oil demand in India this year will amount to only 78 thousand barrels per day. The company's analysts lowered their pre-war forecast by almost 40%. Another consulting agency, Rystad Energy, expects that demand for diesel fuel will practically stop growing altogether. The company predicts its increase by 4-5 thousand barrels per day against the previous 50-60 thousand.

The total demand for petroleum products, according to Rystad, will amount to 4.1 million barrels per day (the pre—war forecast is 4.2 million), and the growth rate of jet fuel consumption will be halved.

Prime Minister Narendra Modi has already urged citizens to save fuel by switching to remote work, using public transport and avoiding unnecessary trips abroad.

What will happen to oil prices

The opening of the Strait of Hormuz should not be expected until at least autumn. At least, this is the opinion of US President Donald Trump. In particular, in an interview with the New York Post, he stated that the blockade of the Strait would be completed by Labor Day on September 7. At the same time, in early June, the Iranian Tasnim news agency reported on Tehran's withdrawal from the negotiation process. The reason was the Israeli strikes on Hezbollah targets in Lebanon, which were later criticized by Donald Trump. On the same day, the American president announced the continuation of negotiations with Iran.

According to Alexander Novak, the protracted conflict in the Middle East is capable of pushing the global economy to replace traditional energy resources with alternative sources. He noted that many countries have already limited the consumption of energy resources, primarily scarce petroleum products — jet fuel, which has led to a reduction in air travel.

— All this behaviorally forces consumers in the future, probably, to react to some changes related to demand. And, most likely, such tectonic shifts will be aimed at looking for new logistics routes, building, looking for new opportunities for transporting energy resources, as well as looking for a replacement. And a replacement, which can be at the expense of other alternative sources," the Deputy Prime Minister added.

At the same time, according to him, the world oil price in the range of $75-85 per barrel is comfortable for both consumers and producers.

Dmitry Scriabin, Portfolio Manager at Alfa Capital Management Company, believes that the decision to increase production will not have a significant impact on the market at the moment. First of all, oil prices now primarily depend on the dynamics of the Iranian conflict. Secondly, due to the situation related to the blockade of the Strait of Hormuz, the ability of most OPEC+ countries to increase production and supplies remains limited.

And Valery Andrianov calls the increase "nominal", since the Strait of Hormuz remains closed and the Persian Gulf countries are unlikely to be able to increase supplies. At the same time, in his opinion, Russia can take advantage of this situation by increasing its exports. At the same time, the increase in production has already been included in current prices and therefore it will not have any impact on quotes.

— If we talk about the longer term and long-term futures, such a decision rather helps to curb price growth. It reminds us that there is a surplus of "black gold" supply in the world, the implementation of which is hampered only by temporary logistical factors, such as the closure of Hormuz, which will be eliminated sooner or later, the analyst believes.

Ekaterina Kosareva believes that in the coming months oil prices will be in the range of $ 90-100 per barrel.