OPEC Promises To Boost Oil Production But Concerns Remain On How Much It Can

On Wednesday, the Organization of the Petroleum Exporting Countries (OPEC) and a coalition of other major producers came to an agreement that would see a small increase in crude oil production to clamp down on higher oil prices.

As part of the agreement, the OPEC+ alliance agreed to boost collective oil production by an additional 400,000 barrels a day by March. After seven years of depressed prices, oil prices began to surge as the global economic recovery took off after a year of depressed demand because of the COVID-19 pandemic.

The OPEC+ grouping came under pressure from other world powers like the United States, Japan and India to do more to raise production. Last November, President Joe Biden coordinated a global campaign to inject barrels from their own strategic reserves to bring down prices.

Previously, disagreements between producers like Saudi Arabia and Russia have created a reluctance to begin boosting production. Both benefit from higher oil prices, but concerns about whether or not Russia or other producers like Nigeria would be able to do enough to raise their oil output have complicated the 23-nation alliance’s own ability to come to an agreement on lowering prices. Concerns about the impact of the Omicron variant of COVID-19 on oil demand have also remained in focus.

Geopolitical tensions have also compounded the problem of how and when to begin raising prices.

The ongoing tension between Russia and Ukraine has raised the specter of U.S sanctions that will strike at the heart of the Russian energy sector. Washington warns that a Russian attack on Ukraine can happen in February at a time of its choosing, which would mean it would happen before the OPEC deal even comes into effect in March. In anticipation of a war shock to Russian oil or gas output, the United States has already begun pursuing talks with other producers like Qatar to boost Europe’s energy supplies.

In the Middle East, the United Arab Emirates, a major oil producer, has come under attack multiple times by missiles from Houthi rebels in Yemen. These attacks, including one that struck near an oil depot outside Abu Dhabi, have increased fears that oil production facilities are at risk.

Iran meanwhile has remained under U.S sanctions that have curtailed its ability to increase oil production. Negotiations to restore the Iran nuclear deal are ongoing, but progress is slow and sanctions relief remains far over the horizon.

One senior OPEC delegate warned the Wall Street Journal that these geopolitical tensions are fueling a reluctance to act sooner, especially as it relates to Russia.

“The big players here would not want to upset the Russians by stepping in, and the West has not asked them yet for more oil [after the Ukraine crisis],” said the senior delegate. “So why risk it?”