OPEC+ is gaining the upper hand as a trendsetter on global oil markets, Vitol’s head of operations for Asia, Mike Muller, said as quoted by Bloomberg this weekend.
“There’s a perception in the market that control is with OPEC+,” Muller said at an industry event. “It will take a long time for U.S. oil to come back” to pre-pandemic production levels.
OPEC+, meanwhile, has around 6 million bpd in spare production capacity amid the cuts, Bloomberg reports.
The latest sign that OPEC+ is in control of oil markets came with the latest price rally: oil benchmarks have hit a two-year high on recovering oil demand in Europe and the United States, but demand recovery is not the only factor. OPEC+ has reiterated its intention to add some 2 million bpd to its combined production from July, but there is no talk of adding any more production.
That’s despite a comment from none other than the International Energy Agency’s Fatih Birol that unless OPEC+ adds more barrels to daily output, prices will go even higher. This comment, in fact, is yet proof of the weight OPEC+ carries in oil markets, just a couple of years after its relevance to oil prices was questioned by analysts who pointed to the United States as the new trendsetter.
Since then, however, U.S. oil production has fallen from over 13 million barrels daily to less than 11 million barrels daily as producers continue to practice restraint after the blow they suffered from the pandemic.
This has strengthened the position of OPEC+ in the post-pandemic world, with its combined production cuts still seen as fundamental to the improvement in prices over the last few months. This position could strengthen even more during the Biden administration, with its renewable energy-focused agenda and ambitions to reduce households’ and businesses’ reliance on fossil fuels.