ALEXANDRIA, Va.—OPEC+ agreed to raise its output by 32,000 barrels per day starting May 1, bringing output to 432,000 barrels per day, reports CNBC. Additionally, the U.S., in consultation with allies and partners, is putting one million additional barrels on the market per day on average for the next six months.
With this unprecedented release, it will be the third time the U.S. has done so in the past six months, and the second time since Russia invaded Ukraine on February 24. It would be the largest release in the near 50-year history of the reserve.
Since the news broke of the release, oil prices have dropped, with the international benchmark Brent crude futures trading 5% lower at $107.69 per barrel Thursday afternoon in London, while U.S. West Texas Intermediate futures fell 5.4% to $101.96.
OPEC, the Organization of the Petroleum Exporting Countries, is an intergovernmental organization of 13 countries. Founded in 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela), it has since 1965 been headquartered in Vienna, Austria, although Austria is not an OPEC member state. OPEC plus countries include Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.
OPEC+ has cut oil production by record amounts since April 2020 to help the energy market recover after the pandemic diminished the demand for crude oil. OPEC+ is slowly pulling back on the cuts. The oil alliance has raised output targets by 400,000 barrels per day each month since August 2021. This will now increase to 432,000 barrels per day from next month. OPEC+ will meet again on May 5.
“When you look at the structure of forward curves, they are very much telling you that this is not a market that is well supplied and there is a considerable supply shock going forward over the rest of 2022,” Edward Bell, senior director of market economics at Emirates NBD, told CNBC.
Bell doesn’t think that this is going to push OPEC+ to increase the scale of their production at a faster pace, especially considering the U.S.’s potential release of up to 180 million barrels from its reserve.
“What this may do is just be the ammunition OPEC+ needs to say ‘Well, look, there is oil available out there, you can draw it out on the reserves.’ We have seen similar messaging from OPEC countries in the past when there have been requests for faster increases,” he told CNBC.
Oil prices have surged since Russia’s invasion of Ukraine, and as the U.S. and its allies have imposed harsh sanctions on Russia, which is the No. 2 crude oil exporter. The country accounts for 14% of the world’s total supply of crude. According to the International Energy Agency, sanctions and oil companies’ refusal to purchase Russian oil could remove about three million barrels per day of Russian oil from the market starting in April. Russia exports four to five million barrels per day of oil.