OPEC and its allies agree to a gradual production increase through December

After two turbulent weeks, ministers from OPEC and its allies, led by Russia, agreed today to increase their joint production in stages over the next five months, until reaching an additional 2 million barrels per day (mbd) in December.

In this way, the alliance known as OPEC+ reduces to about 3.8 mbd its cut agreed in April 2020 - then 9.7 mbd - in response to the coronavirus crisis and the slump in global demand for crude oil.

In a statement, the OPEC secretariat explained that the production increase will begin next August, rising by an additional 400,000 bpd each month through December.

The 23 OPEC+ member countries also unanimously agreed to extend the base production cut agreement until the end of 2022, to be phased out next year.

With the large 2020 cut, producers reacted to the slump in global oil demand due to the coronavirus pandemic crisis, which fell from almost 100 mbd to around 90 mbd.

Saudi Oil Minister Abdulaziz bin Salman stressed in a telematic press conference that the goal of the producers is to have eliminated until September 2022 completely the cut and to offer the usual amount of crude to the market.

"OPEC+ is here to stay," the minister added, in an attempt to remove any doubts about the future of the alliance after two weeks of disputes over production quotas.

The negotiations, aimed at avoiding further upward pressure on crude oil prices, which in turn threatens global economic growth, had stalled over a disagreement between Saudi Arabia and the United Arab Emirates (UAE).

Crude oil prices are currently around $75 per barrel, 20% higher than in the summer of last year.

As for the future calculation of production quotas, the ministers agreed to a slight revision that will benefit certain members of the alliance, namely Russia, Saudi Arabia, the UAE, Iraq and Kuwait.

Russia and Saudi Arabia will be able to adjust from May 2022 their calculation basis for an eventual production adjustment by 0.5 million barrels each (up to 11.5 mbd each), while the UAE will do so by 0.33 mbd, up to 3.5 mbd.

In the case of Iraq and Kuwait, that baseline rises by 0.15 mb/d each, to 4.803 mbd (Iraq) and 2.959 mbd (Kuwait).

The level of compliance with last year's agreed cut stood at 113% in June, i.e. more than what was agreed.

After the five monthly production hikes so far this year, the ministers will assess the situation again in December, including the level of compliance.

In their latest monthly report on the oil market, OPEC analysts estimate that global demand for crude oil will grow by 4.8 % in the second half of the year and by 3.5 % next year.

Thus, global demand is expected to exceed 100 mbd next year for the first time in history.

The OPEC+ alliance plans to produce around 45.5 mbd as of May 2022, with 26.8 mbd from the 13 OPEC countries and 17.7 mbd from the other ten producing countries.

The next meeting of the alliance's ministers is scheduled for September 1.