Ahmad Ghaddar, Dmitry Zhdannikov

LONDON, (Reuters) – The U.S. has put pressure on OPEC+ for more oil production and to cool the prices. However, this spotlight has focused on a new issue: OPEC+ doesn’t have enough capacity to increase its output as fast as it wants.

The Organization of the Petroleum Exporting Countries, also known as OPEC+ is easing records-setting supply cuts made in 2020, when demand was at its lowest point. But not quickly enough to satisfy Washington, which worries about high prices.

OPEC+ includes Russia. They have resisted any pressure to speed up production. Since August, they have been gradually increasing output by 400,000 barrels (bpd), each month. However, they are concerned that a rapid increase would lead to a glut for 2022.

OPEC+ has yet to meet these targets. According to the International Energy Agency, (IEA), OPEC+ produced 700,000. bpd more than was planned for September and October. This raises the possibility of a tighter market and higher oil prices.

In the past smaller OPEC producer in Africa or the Gulf would have exceeded quotas when they required extra cash. This was usually at low oil prices.

The pandemic, environmental pressures and plummeting investments in production have meant that only three OPEC members – Saudi Arabia, United Arab Emirates, and Iraq – are able to raise supplies quickly due to their limited capacity.

Energy Aspects said in a note, “Recent data confirm our long-held assumption that a growing variety of members is running out of spare capacities.”

PRESSING FOR MORE

Donald Trump had pressed OPEC+ for a reduction in output by 2020, when oil prices were at their lowest point. This was to avoid the U.S.’s extermination. This group reached sweeping agreements to reduce global oil supply by 10%, at a record 10 million barrels per day.

Because demand is rebounding faster than expected, President Joe Biden’s Administration has repeatedly pressed OPEC+ to increase supply. They fear that high crude oil prices – which have risen more than half this year – could halt a global recovery.

Energy Aspects reported that “OPEC+ is still not responsive to political pressures to speed up supply increases.”

Biden asked China, India South Korea, South Korea, and Japan to release oil stocks in coordination, despite not being able to convince OPEC+ more to pump.

However, such a move would be complicated by the Paris-based IEA mandate which is representative of industrialised countries. According to its regulations, reserve funds should be released in order to handle shocks such as hurricanes and wars.

Goldman Sachs (NYSE) stated that a stock release “would only serve as a temporary fix for a structural problem and could create clear upside risk to our 2022 forecast price prediction.”

It said that higher crude oil prices might help increase supply. But, investment is being held back by concerns about environmental, governance, and governance (ESG), and banks charging greater for loans for oil than green project.

Goldman explained that ESG-allocation inefficiencies are adding to the investor damage caused by oil producer’s capital destruction over seven years.

According to its output curbs schedule, OPEC+ officially will have 3.8million bpd in force as of December 1. However, some OPEC+ countries have not been able to boost output sufficiently, so the cut is still larger.

DIMINISHING THE BUFFER

The IEA stated that Angola, Nigeria, and Nigeria accounted nearly 90% for the 730,000 bpd OPEC+ production deficit in October.

Energy Aspects states that it anticipates the OPEC+ output “to steadily increase as quotas continue to rise.”

Experts in the industry say that even if OPEC+ was moving at a faster pace, the reduction of spare production capacity would cause a loss of capacity. If the world doesn’t have enough additional capacity, investors could be alarmed and prices will rise.

“The market is able to take some comfort from the industry’s reserve capacity at 3-4million bpd. But, it is my concern that this buffer may diminish.” Saudi Aramco (SE:) Amin Nasser, Chief Executive Officer told the Global Management Forum.

Saudi Arabia produces approximately 10 million barrels per day, although it never has produced more that 11 million for sustained periods of time over many months. However, it maintains it has more production capacity. Gazprom (MCX : Neft) said Russian producers have had difficulty producing more.

U.S. oil-shale industries, which have in recent years transformed the United States into a net crude exporter and importer, could help to ease prices by increasing output.

Russell Hardy from Vitol, one of the largest oil trading companies in the world, said that there are still upside risks to the price.