OPEC+ fears significant oil glut after current production cut agreement ends

The OPEC+ alliance expects a significant overhang of oil supply on the market after April 2022 when the current production cut pact expires, Reuters reported on Wednesday, citing an internal report of an OPEC+ panel it had seen.

“In 2022, a significant increase is seen, leading to an overhang of 181 million barrels by the end of the year,” the Joint Technical Committee (JTC) of the OPEC+ group said in the report.

While OPEC+ sees commercial oil stocks in OECD nations below the five-year average for the rest of this year, it expects the oversupply to return in the second half of next year, according to the JTC’s internal report Reuters has seen.

This assessment of the panel, whose meeting on Tuesday launched this week’s decision-making gatherings of the coalition, suggests that OPEC+ may opt to continue the ongoing deal in some form after April 2022 to ensure a balanced oil market.

Currently, the group keeps around 5.7 million barrels per day (bpd) off the market under an agreement reached in April 2020 and set to expire in April 2022.  

OPEC+ is set to decide on July 1 how to proceed with its oil supply management policy in August.

The alliance said on Tuesday that the overall conditions in the oil market had significantly improved in an optimistic assessment of fundamentals and prospects ahead of Thursday’s decision. 

“The overall brighter picture in relation to the pandemic recovery efforts has led to significantly improved oil market conditions and prospects for future growth,” OPEC Secretary-General Mohammad Barkindo said at the meeting of the Joint Technical Committee (JTC) on Tuesday. 

Analysts largely expect OPEC+ to decide on Thursday to further ease the cuts as of August 1, with most experts gravitating toward a 500,000-bpd increase for the month of August.

Reports emerged on Tuesday that the leaders of the OPEC+ group, Saudi Arabia and Russia, are once again at odds about the easing of the cuts, with Moscow pushing for a more aggressive supply boost and Riyadh preferring a more gradual approach.

This article was originally published on Oilprice.com