REUTERS,
London
Opec+ oil producers have used high summer demand to launch their first output increases in three years, but those targets have proved difficult to hit, leaving the market surprisingly tight.
On paper, the world’s largest group of oil-producing countries should be pumping an extra 2.5 million barrels of oil a day in September versus March, but the data shows that is not likely to happen.
The reason is twofold, with some countries finding it hard to pump more, while others are being instructed by Opec+ to hold back, as punishment for producing above their quotas in the past.
“Iraq and to a lesser extent Russia are compensating for past overproduction and Kazakhstan was already producing at maximum capacity back in March,” said Jorge Leon, a former OPEC official who now works as head of geopolitical analysis at Rystad Energy.
“So the higher quota does not imply higher production.”
Piling on production month after month might have been expected to lower oil prices, yet Brent crude futures have risen to around $68 a barrel from a 2025 low of $58 in April.
It is also notable that prompt prices are now higher than those for six months out, a market dynamic known as backwardation. The prompt premium is justified because rising refinery processing rates and summer demand from power plants in the Middle East are absorbing the Opec+ hikes, said Energy Aspects analyst Richard Price.
“The market is still tight on the prompt.”
The first-month Brent oil futures contract early this month was trading at a premium of $2.74 to that for delivery in six months , whereas in early May it was at a small discount and a 2025 low.
In addition to higher Middle East demand to power summer air conditioning, China has been adding to its inventories.
China’s crude oil stocks rose by 82 million barrels or almost 900,000 bpd in the second quarter, according to the International Energy Agency.
“Chinese oil demand has been better than many expected at the start of the year,” said UBS analyst Giovanni Staunovo. “Chinese stockpiling activity has also played a role in keeping crude prices supported.”
The Opec+ increases have also come at a time of low stocks in Organisation for Economic Co-operation and Development (OECD) developed nations, a legacy of earlier Opec+ cuts, a trend that tends to support prices.