Oil prices looking for direction: OPEC+ sticks to gradual supply rise

Thu 03 Feb 22, 12:46pm (AEST)
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Key Points

  • OPEC+ sticks to its drip-feed approach to bringing back oil supply
  • Members have struggled to hit quotas, raising concerns of a growing deficit
  • Oil prices could remain elevated amid low inventories and lack of spare capacity

The world’s most powerful oil producers (known as OPEC+) agreed to stick to a gradual monthly increase in oil output of 400,000 barrels a day.

The petroleum organisation shrugged away mounting pressure from top consumers such as the US and India to pump more oil to relieve surging energy prices.

OPEC+ will meet again on March 2 to decide on April output levels.

Oil price volatility

Crude oil prices hit fresh 7-year highs of US$89.70/bb in wake of the meeting. Gains quickly faded around midnight and back to the US$87/bb range.

"Any oil gains quickly evaporated after Iran’s oil minister reiterated Iran is ready to boost our supply to the market as quickly as possible," commented OANDA senior market analyst, Ed Moya.

"Energy traders were not surprised and sold the OPEC+ announcement. The oil market is not really any closer to seeing additional barrels of crude, but today we are not seeing any fresh catalysts to send prices to fresh highs."

USOIL 2022-02-03

Crude oil 2014-2022, TradingView

Supply limitations

Goldman Sachs said that even if OPEC+ brings forward its production outlook in April, it may only shave off just $3 to oil prices.

Goldman flagged critically low levels of inventory across a broad range of petroleum products and the lack of spare capacity to ramp up supply.

In the past few months, OPEC+ members such as Nigeria, Angola and Malaysia have struggled to hit quotas, according to S&P Global Platts.

OPEC+ production vs quota

OPEC+ members output vs. quotas

"If this trend persists, the oil market is likely to swiftly move into deficit and push oil prices even higher, at a time of soaring inflation," said S&P Global Platts in a note on Thursday.

This could bode well for local energy names including Woodside Petroleum (ASX: WPL) and Santos (ASX: STO).

Morgans reiterated an Add rating for both stocks on Wednesday.

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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