The OPEC+ Proposal Falls Short Of Expectations, Prices Rise

Oil prices rose somewhat on Friday as markets dismissed OPEC+’s plan to raise output, questioning if the additional output would compensate for lost Russian supply and fulfill China’s surging demand in the face of loosening COVID restrictions.

At 0640 GMT, WTI crude prices in the United States were up 7 cents to $116.94 a barrel; meanwhile, Brent crude futures were up 18 cents to $117.79 a barrel. OPEC+ decided on Thursday to increase output by 648,000 barrels per day (BPD) in July and August; originally they agreed on 432,000 BPD, insufficient for a tight market. The increases were proportionally among the member nations. However, analysts predicted that the supply increase would be smaller than the declared volume due to Russia’s inclusion in the deal and members such as Angola and Nigeria already failing to fulfill their commitments.

The Oil Market Struggle Continues

“The alliance’s output will continue to struggle to satisfy even this small increase of quota hikes,” ANZ Research analysts wrote in a report. According to ANZ analysts, Russian output has already plummeted by 1 million BPD since it invaded Ukraine; which Moscow describes as a “special military operation”; moreover, it should decline considerably more once the European Union’s embargo on Russian oil takes effect. “To put it another way,” said SPI Asset Management Managing Partner Stephen Innes, “traders believe the incremental rise is too tiny relative to the mounting downside supply concerns from the EU embargo despite predicted higher demand from China.”

COVID-19 restrictions were eased this week in China’s financial center Shanghai and the capital, Beijing, as daily COVID-19 instances fell. The Chinese central government has pledged wide assistance for the country’s economy; it will likely focus on high-fuel-intensity sectors like infrastructure and property development. Analysts noted, however, that because Beijing has not modified its stance on COVID-19 guidelines; hence, there are downside risks to oil consumption and prices.

“For the time being, China’s reopening from COVID lockdowns is beneficial for demand,” National Australia Bank (OTC: NABZY) analysts wrote in a note. “However, the nation remains a zero-COVID policy, so sudden lockdowns can swiftly erode this benefit.”