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· The OPEC oil cartel and allied countries have decided to increase oil production by 2 million barrels per day from May to July, to ensure recovery of the global economy from the COVID-19 pandemic in general and boosting their respective economies in particular
· The group will add 350,000 barrels per day in May, 350,000 in June, and 400,000 in July, restoring production that was slashed last year to support prices as demand dipped due to the pandemic
· One million barrel per day addition from Saudi Arabia will be a decisive one to augment the supply
The OPEC oil cartel and allied countries have decided to increase oil production by 2 million barrels per day from May to July, to ensure recovery of the global economy from the COVID-19 pandemic in general and boosting their respective economies in particular.
The group will add 350,000 barrels per day in May, 350,000 in June, and 400,000 in July, restoring production that was slashed last year to support prices as demand dipped due to the pandemic. One million barrel per day addition from Saudi Arabia will be a decisive one to augment the supply. OPEC members led by Saudi Arabia and non OPEC members led by Russia have been deciding the production levels. Taking a decision without looking at the consequences of the action has been a risky affair. For instance, during the pandemic days, demand for oil globally has gone down. Therefore, oil producing countries were forced to cut back the production to help stabilize prices. Now, the demand is picking up and an immediate and indiscriminate increase in production may create glut in the market disallowing the prices to firm up.
Now oil prices have firmed up and the producers feel that there is more than adequate demand for the added oil. Crude oil was 3.6% higher at US$61.28 per barrel in trading on the New York while Brent crude rose 3.1% per barrel to $64.66. Yet, the oil producing countries are cautious about increasing the production since a reckless decision can backfire. In the meanwhile, the oil consuming countries pitch for an increase since the prices have gone up and anticipated a further demand since the world economy is limping back to its pre pandemic level. Yet, the fear about the second or third wave of the pandemic as experienced in some countries and the consequent drop in economic activities will force the oil producing countries to be vigilant about the production increase.
Indeed, the oil producing countries in Africa such as Angola and Nigeria are eagerly looking for prices firming up since their economies are heavily dependent on the hydrocarbon sector. There is also pressure from countries like China and India, who are the oil guzzlers of the world to up the production and to stabilize the prices since prices moving north will greatly hamper their growth pathway.
