On Monday, OPEC+ decided to continue gradually ramping up oil production by 400,000 barrels per day (bpd) through November, even as natural gas shortfalls and climate disasters strain oil supplies across the globe.
After the meeting, West Texas Intermediate (NYSE: USO), the benchmark for U.S. oil, shot up to its highest price in seven years, to 73.83 a barrel.
Oil watchers had expected OPEC+ to increase its monthly production targets given the risk that rival producers might swoop in to take advantage of ongoing high prices. But increased demand is being met with a distinct lack of supply on the part of said rivals.
According to Vitol Group, an oil trader, Saudi Arabia and company will have a singular role in setting oil prices over the coming months.
Meaning that the kingdom is "keen to tweak the current OPEC+ deal of monthly increases as little as possible, "Amrita Sen, co-founder of consulting firm Energy Aspects, told Bloomberg.
According to the Wall Street Journal, Saudi officials privately told some delegates it hoped to take advantage of higher prices for deficits felt last year. According to OPEC statistics issued last week, oil export revenue to the kingdom fell by almost half on year to year basis in 2020, to $119 billion.
Oil supplies remain strained across the globe. Dwindling natural gas inventories in Europe and North America have sent the price of the commodity roaring to $190 a barrel.
As a result, more and more gas plants are switching over to oil, a trend which could increase demand by 500,000 bpd, according to Amin Nasser, CEO of Aramco, Saudi Arabia's state-run oil concern.
Oil markets are also contending with Hurricane Ida's climactic devastation. Last month, the storm knocked 32 million barrels out of production, roughly equivalent to two months of OPEC increases. Ida's toll on U.S. oil production is expected to linger until early next year, to the tune of a loss of 300,000 bpd.
Monday's agreement "will allow us to continue to normalize the market situation," said Russian Deputy Prime Minister Alexander Novak during the meeting, part of which aired on Russian state TV.
The remarkable unity between Riyadh and Russia seen today stands in stark contrast to their brutal price war last year, which turned oil prices negative for the first time. For the time being, both continue to stand by their recent agreement to ramp up production by 400,000 bpd per month. And both expect production to return to pre-COVID levels by next year.
In the meantime, Saudi Arabia and company expect that the post-COVID economy can weather higher oil prices despite currently strained supplies.
"The kingdom is comfortable with the current price range and feels it won't weigh on demand for oil," one Saudi official told the Wall Street Journal.
Whether that contention holds or whether OPEC+ can even hold to its current production schedule remains to be seen. The group's African coalition struggles to boost output, while sanctions continue to plug up pipelines flowing out of Venezuela and Iran.