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Prompt Brent topped $85.00/barrel today while WTI reached a new seven-year high at $82.49. Oil price has found a massive tailwind from the global energy/BTU shortage showing up European and Asian natural gas, LNG, and coal markets. Note that crude, even above $80.00, remains relatively “cheap” versus other energy/BTU sources with an estimated 500,000 to one million bpd of global fuel switching expected from gas to oil in the months ahead.

The rapid escalation of oil and gas prices has also ramped up calls for OPEC+ to add more supply to help “cool off” the market. Most notable are the multiple requests from the Biden administration for OPEC to increase its production ramp at a rate faster than the 400,000 bpd per month pledged this summer. The irony here is that Biden’s requests come even as the US oil industry continues to face federal regulatory hurdles, ESG headwinds, capital constraints and struggled to grow US production at all this year. We expect the Biden administration will continue to make these sorts of requests alongside other large global oil consumers like India and China. That said we see little likelihood OPEC will waver from this course for the balance of the year.

A great deal of clarity was provided on OPEC+ intentions at a Moscow energy forum this week. It was here that Russian president Putin raised the prospect of $100 oil in response to a reporter’s question. Likely more important was the confirmation from Russian deputy prime minister/energy minister Alexander Novak that “We are acting under an agreed schedule. Consolidated agreement was to add 400,000 bpd,” when asked about additional OPEC supply.

Saudi oil minister Prince Abdulaziz bin Salman also spoke at the Russian energy forum. He reiterated the need for OPEC and its allies to take a gradual, phased approach to supply hikes. “We have done a remarkable job,” he said during the Russian Energy Week conference. “Gas markets, coal markets, other sources of energy need a regulator. This situation is telling us that people need to copy and paste what OPEC has done.” Another bit of irony given OPEC’s long history of dysfunction.

OPEC’s embrace of the status quo, despite skyrocketing prices for natural gas/concerns about long-term oil demand destruction also likely reflects the lack of spare capacity within the producer group. Since bottoming out at 22.53 million bpd in June 2020, OPEC supply has rebounded 4.96 million bpd. Saudi Arabia has accounted for 2.2 million bpd of this increase with Gulf states Kuwait and UAE together adding another 900,000 bpd. So additional room to boost among Gulf allies is limited.

Saudi production was 9.7 million bpd in Sep, up from its 7.53 million bpd low watermark in June 2020. Under its Vision 2030 economic plan the kingdom has not been investing in spare production capacity since 2018 so top current production of 11.0-11.5 million bpd, implies 1.3-1.8 million of remaining spare Saudi capacity. Note that global oil demand next year is expected to grow 3.5 million bpd with US supply growth of just 700,000 bpd.

Production data in recent months has also revealed that OPEC’s west African producers, Nigeria, Angola, and DRC are all struggling to maintain production levels. At 1.2 million bpd Libyan production is near multi-year highs. But the risk of more fighting there has increased in recent weeks and there is a much greater risk of production losses than production upside from current levels. All the above makes it difficult to see how OPEC could do much more than the current 400,000 bpd per month trajectory even if they wanted to. They made it abundantly clear this week they do not.