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OPEC+ is set to increase production again due to tighter oil market supply than previously predicted

OPEC+ is set to increase production again due to tighter oil market supply than previously predicted

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The Organization of the Petroleum Exporting Countries (OPEC) and its allies are expected to resume the previously suspended crude oil production on Tuesday, after OPEC lowered its global oil market supply forecast.

OPEC+ representatives said that the Tuesday meeting is expected to approve a moderate increase of 400,000 barrels per day, restarting production capacity temporarily offline during the new crown epidemic. At the preliminary meeting held on Monday, OPEC analysts lowered their forecasts for excess supply in the oil market for the first quarter, as the supply of competitors is expected to weaken.

About two-thirds of the production capacity suspended by OPEC and its allies in 2020 has so far recovered. They are seeking to restore surplus capacity at a speed that can just meet the recovery of oil demand, so as to avoid price spikes or plunge the market into a new downturn. So far they have achieved the desired results, and the international crude oil price is close to 78 US dollars per barrel.

According to a report that can be seen, the OPEC+ Joint Technical Committee currently predicts that there will be an excess supply of 1.4 million barrels per day in the first quarter of 2022, which is about 25% less than the forecast a month ago.

The committee believes that as "the world is more capable of responding to the new crown epidemic and its challenges," it is expected that the impact of the omicron mutant strain will be "mild and short-lived."

Seasonal calm

Institutions including OPEC and the International Energy Agency (IEA) have long predicted that the oil market will be oversupplied this quarter. However, an OPEC representative said that the organization is not worried about increasing production when there is oversupply, because the current inventory levels are low and are usually replenished during periods of calm seasonal demand. According to data from the Joint Technical Committee, as of November, inventories in developed countries were 85 million barrels lower than the 2015-2019 average.

A summary of Apple’s data as of December 27 shows that oil consumption indicators indicate that the market can absorb the increased supply of OPEC+. With the exception of one major Asian country, travel in other countries has shown a month-on-month increase.

The OPEC report also shows that the oversupply situation may increase later in 2022. OPEC+ has stated many times before that if necessary, it can choose to suspend or even reverse its production increase plan.