Opec+ heavyweights defend 'slow and steady' strategy

Opec+ heavyweights Saudi Arabia, Russia and the UAE today reaffirmed their support for the group's plan to gradually phase back crude production, and once again knocked back suggestions they should raise output faster and more aggressively to help temper rising oil prices.

Crude prices have been on an upward trajectory since the Opec+ group kicked off its latest output restraint deal in May last year, with front-month Ice Brent futures above $84/bl today, the highest in more than three years. But there appears little appetite among Opec+ members to respond with a shift in strategy.

"The alliance has done a good job," UAE energy minister Suhail al-Mazrouei said today at Russian Energy Week in Moscow. "I'm not worried that we will have a heated market." Russian deputy prime minister Alexander Novak, also at the event, said he does not see "any particular problems" either, nor any "major volatility" in the market.

The 23-country producer group has agreed on a roadmap for restoring the production that it removed from the market last year after demand collapsed in the wake of the pandemic. The plan entails monthly hikes of 400,000 b/d through to April next year, followed by a rise of 432,000 b/d each month until all of the original 9.7mn b/d cut is unwound. At this month's meeting, the group stuck to the roadmap and sanctioned a 400,000 b/d increase in its collective output quota for November, despite signs that the market may require a larger hike.

Oil prices have risen by more than $2/bl since that meeting, and latest data from the IEA put OECD industry oil stocks 162mn bl below the pre-Covid five-year average - a key metric that Opec and its partners have been using to formulate policy. But the group is still championing its slow and steady approach. "With the collaboration we have seen, we still have some reserves that we as a group can put into the market," al-Mazrouei said. But "if we don't do things with balance… we may end up overdoing it."

Saudi energy minister Prince Abdulaziz, also speaking at Russia Energy Week, advised against taking a short-term view of the market and highlighted the hefty supply surplus projected for next year. "We keep telling people that we should look way beyond the tips of our noses, because if we take 2022 into account, you will end up, by the end of the year, with huge levels of stocks," Prince Abdulaziz said. "We want to do it in a gradual, phased-in approach. We believe that we will have a challenging year in 2022 if we don't attend to the situation amicably, and with the same resolution," he said.

Copy and paste

Opec+ delegates told Argus last week that the group's decision to stay the course at its latest meeting was largely driven by the belief that the current tightness in the oil market is temporary and will pass once the gas, NGL and coal markets stabilise. What is happening in the oil market today is "only an aberration of what has been happening with other sources of energy", Prince Abdulaziz said today.

"What we see in the oil market today is incremental increases in price - 29pc vis-a-vis a 500pc increase in gas prices vis-a-vis a 300pc increase in coal prices vis-a-vis a 200pc in NGL prices," he said.

Opec+ has done "a remarkable job of being the so-called regulator of energy markets", the Saudi minister said, adding that gas, coal and other energy markets "need a regulator". The current situation shows that other energy markets "need to copy and paste what Opec+ has done and has achieved", he said.

By Nader Itayim