The Organisation of the Petroleum Exporting Countries and allies (OPEC+) have agreed to boost the oil supply from August.
The OPEC+ disclosed in a statement issued on Sunday that the group will increase supply by 2 million bpd or 0.4 million bpd a month from August until December 2021.
The members have also agreed to new production allocations from May 2022 to overcome differences between Saudi Arabia and the United Arab Emirates (UAE) that threatened the plan.
The group has also agreed to extend their overall pact until the end of 2022 from an earlier planned date of April 2022, to leave more room for finesse in case the global recovery stalls due to the new COVID-19 Delta variants.
Backstory
As earlier reported by Nairametrics, the OPEC+ had a breakdown in talks a few weeks ago as a result of a disagreement between the United Arab Emirates (UAE) and Saudi Arabia over output cut policy.
The disagreement by the members got investors concerned about a possibility of a price war between members as seen in April 2020 and this concern brought about significant volatility to the oil market.
OPEC+ members last year agreed to record output cuts of almost 10 million barrels per day (bpd) to cope with a pandemic-induced slump in demand, curbs which have been gradually relaxed since then and now stand at about 5.8 million bpd.
The dispute between Saudi Arabia and the UAE became public notice, with both airing concerns about details of a proposed deal that would have added an extra 2 million bpd to the market and extended the pact until the end of 2022.
The goal was to ease upward pressure on oil prices that have recently climbed to 2-year highs.
What this means
According to Reuters, to overcome the disagreement, the OPEC+ had to agree to new output quotas for some members, which include the UAE, Saudi Arabia, Russia, Kuwait and Iraq from May 2022.
According to Reuters calculations, the overall adjustment will add 1.63 million bpd to supply from May next year.
The UAE will see its baseline production, from which cuts are being calculated, increase to 3.5 million bpd from May 2022 from today’s 3.168 million. Saudi and Russia will also see their baselines rise to 11.5 million bpd each from the current 11 million.
Oil prices had their worst week close on Friday in months. Brent oil futures, the global benchmark for oil, finished the week at $75.55 a barrel. For the week, it lost 2.6% accounting for the sharpest weekly decline since the week to May 14.
The West Texas Intermediate crude, the benchmark for U.S. oil, ended the week at $72 per barrel. It lost 3.4%, its largest weekly loss since the week ended April 2.
