Jul 16, 2020 - Energy & Environment

OPEC's balancing act: increasing output against smaller demand

An off-shore oil platform in California. Photo: Omar Marques/SOPA Images/LightRocket via Getty Images
An off-shore oil platform in California. Photo: Omar Marques/SOPA Images/LightRocket via Getty Images

The OPEC+ coalition is entering the next phase of fraught market-management efforts that have repercussions for the battered U.S. oil industry.

Driving the news: The group yesterday agreed to press ahead with plans to begin increasing output as demand haltingly recovers.

  • The coalition of OPEC and Russia — among other producers — will ease their joint curbs by roughly 2 million barrels per day starting next month.
  • It hews to a deal struck in April, as COVID-19 shattered demand, to cut 10 million barrels daily from the market for three months before beginning to relax the curbs.

Why it matters: The oil sector is in uncharted waters amid uncertainty over the recovery from unprecedented demand loss and the severity of the COVID-19's trajectory.

  • "Oil market balance is progressively improving … But risks and uncertainties are huge, be they related to the pandemic or to the economic consequences," Algerian energy minister Abdelmadjid Attar said at yesterday's meeting, per the Associated Press.

What they're saying: KPMG analyst Regina Mayor said OPEC+ faces a delicate task amid its members' competition with U.S. producers, whose output is very price-sensitive.

  • "OPEC+ will have to work hard to ‘thread the needle’ to allow slight increases in production without unleashing U.S activity. Basically, this will be a classic case of how to boil the frog without it jumping out of the pot," Mayor said.
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