S&P Global Platts: OPEC+ sticks to its guns for March despite capacity, geopolitical concerns

Press Release

10-02-2022

S&P Global Platts: OPEC+ sticks to its guns for March despite capacity, geopolitical concerns

In a Groundhog Day meeting that wrapped up in a record low 16 minutes, the OPEC+ alliance arrived at the same conclusion as it has in the previous seven months -- no additional supplies beyond the previously agreed 400,000 b/d monthly tapering of its pandemic output cuts were needed. Any difficult decisions over the group's shrinking spare capacity and sanctions challenges were kicked down the road.
Oil prices, which have hit a seven-year high in recent days, rose sharply in the wake of the meeting, with front-month ICE Brent futures climbing to an intraday high of $90.52/b. But by 1628 GMT, the gains were erased, with Brent trading at $88.53/b, down 64 cents from the previous settlement after a smaller-than-expected draw in US oil inventories.
This decision also comes amid a much tighter physical oil market, with inventories shrinking and the Brent crude complex in its steepest backwardation on record, nearing $3/b between February and March contracts, according to Platts data.
The 19 OPEC+ countries with quotas underperformed their production targets by 832,000 b/d in December, according to an analysis prepared for the group's technical committee and seen by S&P Global Platts. 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.
"Capacity constraints will become more limiting by May, when 96% of the world's remaining 1.8 million b/d of spare capacity will reside in Saudi Arabia and the UAE," said Paul Sheldon, Platts Analytics' chief geopolitical adviser. "A thinning market buffer increases the importance of Iran nuclear talks, as well as supply risks from Russia, Libya and elsewhere."
Platts Analytics expects Russia to run out of its sustainable crude production capacity of around 10.5 million b/d, by the end of the second quarter. "Production growth in 2022 will not keep pace with its quota increases under the current framework deal," it said in a recent note. "We forecast a new drilling program and warmer weather will allow crude production to grow by 325,000 b/d by end 2022."

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