Market Observers Expect OPEC+ to Raise Crude Oil Production
January 4, 2022
The market expects OPEC+ to stay the course and add an additional 400,000 BPD starting February 1st. OPEC+ has continued to say that the impact on demand from Omicron is not enough for them to reduce output at this time. There are several OPEC members that are struggling to produce at their quotas which calls into question whether OPEC+ can keep up these monthly increases. Saudi Arabia and Russia are the two most likely candidates to ramp up production if necessary, to help OPEC+ achieve its goal.
Libya is having issues with its production. Two weeks ago, militants closed Libya’s largest oil field causing oil output to fall by 350,000 BPD. Now it is being reported that they have a pipeline outage that will reduce oil production by another 200,000 BPD. Incidents like this will impact the 2022 supply and demand balances many traders are trying to get a handle on right now as to how this could impact price trends for 2022.
US Shale oil production is also a big part of what happens to supply balances in 2022. Right now, the mantra of most publicly-traded oil production companies is to practice capital discipline, pay down debt, and buy back stock. This plan is not positive for more production. But prices have a big impact on what these companies do and if oil prices rally to high enough levels there will be more drilling activity. Most private companies are also being disciplined, but the market has seen some of these companies add a bit more production as the price for WTI crude traded around $80 per barrel.
OPIS cut its estimate of the surplus in global oil markets this quarter a day before the OPEC+ group consider another output boost.
“Oil demand is widely expected to set new all-time highs above the 100 million barrels a day mark in 2022,” said Ryan Fitzmaurice, a commodities strategist at Rabobank. “The global supply-demand balance is expected to remain tight,” given that there have been production issues recently, he said.