OPEC Plus agrees to significant oil output increase: What does it mean?

The OPEC (Organisation of the Petroleum Exporting Countries) and other allied oil producing countries including Russia have agreed to raise production in July and August, reported AP on Thursday.

OPEC Plus said it has agreed to boost output by 6,48,000 barrels per day (bpd) in July - or 0.7% of global demand - and a similar amount in August versus the initial plan to add 4,32,000 bpd a month over three months until September, reported Reuters.

This move is expected to offer some relief to the global economy. Oil prices fell slightly on Thursday on speculation that the move may boost crude output.

Saudi Arabia and other OPEC+ have agreed to increase production amid Western sanctions on Russian oil following invasion on Ukraine https://t.co/8BBMlr3LS3 pic.twitter.com/Q0t1uRT1y0

— Reuters (@Reuters) June 3, 2022

WHAT DOES THIS MEAN?

• OPEC Plus will increase the size of its oil-supply hikes by about 50 per cent. The increase would be divided proportionally between members in the usual way, delegates said. Countries that have been unable to raise production, such as Angola, Nigeria and most recently Russia, would still be allocated a higher quota. That could mean that the actual supply boosts are smaller than the official figure, reported Bloomberg.

• The move will be seen as a sign of willingness by Saudi Arabia and other OPEC nations to pump more after months of pressure from the West to address global energy shortages worsened by Western sanctions on Russia, reported AP.

• The move to increase production comes as rising crude prices have pushed gasoline to a record high throughout the world. Elevated energy prices had already slowed down the global economy as it was emerging from the Covid pandemic.

JOE BIDEN'S SAUDI VISIT

• The decision comes days before US President Joe Biden's expected visit to Saudi Arabia, the de-facto head of the OPEC Plus group.
• US diplomats have worked for weeks on organising Biden's first visit to Riyadh after two years of strained relations because of disagreements over human rights, the war in Yemen and US weapons supplies to the kingdom, reported Reuters.
• US intelligence has accused Saudi Crown Prince Mohammed bin Salman, of approving the 2018 killing of Saudi journalist Jamal Khashoggi. Saudi Arabia and its neighbour the UAE have been frustrated at the Biden administration's opposition to the military campaign in Yemen, reported Reuters.