OPEC+ set for only slight output target increase

OPEC+ will likely stick to plans for a modest increase in oil output in May, several sources close to the group said, despite a surge in prices due to the Ukraine crisis and calls from the United States and other consumers for more supply.

Several consuming nations including the United States have urged producers to raise their output by more as crude prices have surged, hitting their highest since 2008 this month at over US$139 a barrel.

But major OPEC members such as Saudi Arabia and the United Arab Emirates have held back on increasing their production targets, while OPEC+, a group that includes Russia, has steered clear of the topic of Ukraine.

OPEC+ has boosted output targets by 400,000 barrels per day (bpd) each month since August 2021. From 1 May, that monthly target increase will rise slightly to 432,000 bpd.

The increase is not a concession to consuming countries asking for more oil, but comes after internal recalculations of reference production levels, effectively higher baselines for Saudi Arabia, Russia, Iraq, the UAE and Kuwait.

Sources have said Riyadh has conditioned any increase in supply beyond what it has agreed with OPEC+ on more Western support in its war in Yemen and security guarantees over an Iranian nuclear deal.

Seven OPEC+ sources told Reuters the group would most likely stick to the plan for May, with one of them saying Saudi Arabia’s reluctance to agree a bigger hike also reflected its aim to not endanger cooperation on oil policy with Moscow.

“The Saudis are careful,” the source said. “They don’t want to hike oil output above plan in order not to show they are against Russia.”

A Russian oil source said Russia did not expect OPEC+ to raise its planned increase for May and “hopes for OPEC+ partners’ support.”

While OPEC+ has increased its output target each month, production has not met those targets as some members struggle with capacity constraints, and this has been a factor underpinning prices.

OPEC+ missed its target by 1.1 million bpd in February, according to the International Energy Agency.

The baseline changes taking effect in May were agreed in July 2021 and add a total of 1.632 million bpd to the reference production – the level from which output is adjusted – of Saudi Arabia, Russia, the UAE, Iraq and Kuwait.

In an August 2021 article in OPEC’s magazine, OPEC Bulletin, Saudi Energy Minister Prince Abdulaziz bin Salman was quoted as saying the monthly output hikes would increase to 432,000 bpd to reflect the revised baseline levels.

One of the OPEC+ sources said the group was discussing whether the new baselines would further affect the deal although no decision had been made yet.

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