Opec Raises Output Ceiling Amid Market Concerns Over Tight Supply and High Prices

In a significant move to address growing concerns over tight supply and high prices, Opec's member countries have agreed to raise their output ceiling by 500,000 barrels per day (b/d) with immediate effect. This decision, orchestrated by Saudi Arabia, reflects a recognition that urgent action is needed to build stocks before next winter. The move is expected to provide a calming influence on the market, according to the International Energy Agency (IEA).

Key Takeaways:

• Opec has raised its output ceiling by 500,000 b/d, with the option to increase by another 500,000 b/d as soon as April.
• The decision was made to address growing concerns over tight supply and high prices, particularly ahead of next winter.
• Saudi Arabia convinced Opec to stop worrying that higher output will undermine prices, and that time is running out to build stocks.
• Ministers acknowledged that most of the additional Opec supply will be heavy sour crude, but that "will probably widen the margin between light sweet crude and heavy sour crudes."
• Qatar, Kuwait, and Algeria all acknowledged receiving calls from Washington in the run-up to the meeting, but Opec's decision to raise its output ceiling did little to calm markets.
• Algeria, Libya, Venezuela, and host Iran all opposed the Saudi position to varying degrees, arguing that it would have little or no effect and that current high prices had not affected global economic growth.
• Opec forecasts that the call on its crude will be 30.3mn b/d in the fourth quarter, with ministers conceding that there is little spare capacity outside Saudi Arabia.
• Ministers approved a proposal to change the composition of Opec's reference basket of seven crudes to make it more representative of Opec's largely heavy sour exports.

Statistics:

• Opec has raised its output ceiling by 500,000 b/d.
• The new total capacity of Opec is expected to be around 31.5mn-31.8mn b/d, including Iraq.
• The current production of Opec is running around 29.7mn b/d.
• Opec predicts that 500,000-Imn b/d will be brought on stream before the end of the year.
• Libya expects to boost capacity by 200,000 b/d to 2mn b/d.
• Nigeria's production increment is expected to be 100,000 b/d, which could be brought on "within weeks".
• The IEA estimates that the difference between the new Opec basket and the current basket is "perhaps $1-1.50/bl".

Sources:

• Opec meeting in Isfahan, Iran
• International Energy Agency (IEA)
• Saudi oil minister Ali Naimi
• Opec president and Kuwaiti oil minister Sheikh Ahmad al-Fahd al-Sabah
• Algeria's oil minister, Chakib Khelil
• Libya's oil minister Fathi ben Shatwan
• Nigerian presidential oil adviser Edmund Daukoru
• Adnan Shihab Eldin, acting secretary-general and head of research.