Prompt WTI reached $93.17/barrel Friday morning as oil market upside accelerated. Buoyant oil prices have benefited from bullish technical momentum, expanding geopolitical uncertainties, stronger than forecast demand recovery, and low global inventory cover. The supply side has also been slow to adjust, despite more than a year of strong price signals. Today marks WTI’s seventh consecutive higher weekly close.
This week’s OPEC+ agreement to maintain their 400,000-bpd monthly increase trajectory for an additional month (March 2022) was greeted with price enthusiasm. Prior to the meeting, some analysts and bank researchers had increased odds that OPEC might tweak this amount higher given crude’s proximity to the $100 mark. These pre-meeting expectations seemed to heighten the constructive market response to the decision not to alter course.
An upward adjustment in their supply trajectory goal would have been largely symbolic anyway. OPEC production data through January 2022 highlights the growing gap between OPEC’s supply intentions and its ability to deliver on these goals.
Last spring OPEC+ agreed to begin the process of bringing supply back online with monthly increases of 400,00 bpd spread across OPEC+’s membership. After an initial surge during May, June, and July, OPEC output momentum waned. There has not been a monthly increase of 400,000 or more since July. The average OPEC production in the final quarter of 2021 was 217,000 bpd according to Bloomberg estimates including 90,000 bpd in December (see chart). OPEC supply growth last month was just 50,000 bpd.
In recent months there has been a clear trend where production difficulties in Angola, Nigeria, Libya, and elsewhere have offset the supply added by Saudi Arabia and its Gulf allies. We are also at a point where total Saudi production last month of 10.1 million bpd puts the kingdom within 1.5 million bpd of its expected capacity at 11.5 million bpd and April 2020 surge peak at 11.6 million bpd. This is especially important as we look to the second half of the year given there is little spare OPEC+ capacity outside Saudi Arabia. Fellow OPEC+ lynchpin Russia is already producing at its capacity.