Olesya Astakhova and Ahmad Ghaddar by Alex Lawler

LONDON/MOSCOW – OPEC+’s Monday decision to keep with a modest and gradual increase in oil output, despite high prices, was partly motivated by fears that prices and demand could fall, sources close the group said to Reuters.

Another reason is money. Three OPEC+ sources stated that the OPEC+ alliance of oil producers led by Russia, and Saudi Arabia, has seen their income decline during pandemic-induced demand in 2020 and the price crash in 2020. They are now enjoying a boost in revenue, according to three OPEC+ sources.

OPEC+ achieved record production reductions of approximately 10 million barrels/day (bpd), or 10% of world output in April 2020. This was after global restrictions to stop the spread of coronavirus, which paralysed oil demand, and dropped prices.

A OPEC+ representative said that everyone is content with the current level of oil prices. He declined to identify himself by name.

OPEC+ was faced with calls from Indian and American consumers for more supply this year. According to sources, the group is considering an 800,000-bpd increase – nearly 1% of total world production – before Monday’s meeting.

However, by Monday morning the signals coming from OPEC+ ahead of their virtual meeting that day had changed. Most likely result was for OPEC+ to stick to its existing plan to increase output by 400,000 bpd.

“From past experiences, OPEC is prudent as any hasty decisions can cause a sharp fall in oil prices,” stated an OPEC+ source. He explained the reasons why OPEC+ did not increase production further.

“So, the United States has yet to exert any political pressure on the United States or other countries in order to change this strategy.”

Sources say that OPEC+ is aware of the possibility that price gains could be reversed just as fast. It happened in 2018, when the prices fell below $50 in the final month of 2018.

The OPEC+ source stated that “the oil market remains fragile, and there’s no guarantee that prices will remain stable.”

COVID CONCERN

Another OPEC+ source said that before Monday’s meeting they had been under increasing pressure to boost production. However, he added, “We are afraid of the fourth waves of corona. Nobody wants to make large moves.”

Some group members expressed concerns that an additional boost in production could disrupt next year’s balance market – which OPEC+ sees as surplus – and increase inventories, another source claimed.

After OPEC+ remained true to their plan, oil rose above $81 Monday. The price of oil has risen further since then, reaching $84 by Wednesday.

The higher income of OPEC members will reduce the impact of the last year’s steep price decline. Based on OPEC’s Annual Statistical Bulletin, $321 billion was earned by OPEC from its petroleum exports in 2020. This is 43% less than 2019.

Iraqi oil minister Ihsan Abdul Jabbar made a joke at Wednesday’s Energy Intelligence Forum, saying, “For us Iraqis with a forty million population, and we depend upon oil for 85% our revenue, it should reach $120!” Before stating that 75-$80 was an acceptable price for producers and consumers.