The real reason why OPEC+ is reluctant to increase production

On Tuesday (November 23), the United States announced the release of its strategic oil reserves, while expressing hope that OPEC+ will continue to increase production
by 400,000 bpd per month, as planned in July.

The U.
S.
government wants OPEC+ members to increase oil production to curb exorbitant oil prices, but the Middle East and Russia-dominated OPEC+ has been unable to do anything about it, even if it is only to help American consumers lower gasoline prices (not to mention the unknown United States who need help).

The key is that the organization's spare capacity is decreasing, especially in several oil-producing countries in the Middle East
.
Africa's OPEC member countries are clearly underperforming due to a lack of spare capacity and underinvestment, and OPEC+ as a whole has been struggling for months to meet its total quota
.

Therefore, even if the constant calls of oil consumers led by the United States and concerted action are heeded to increase production, OPEC+ is unlikely to increase production
quickly in a short period of time.
Keeping spare capacity at a relatively low level makes markets and oil prices more vulnerable to supply disruption shocks
.

Spare capacity shrinks

Although the IEA said earlier this year that a net-zero world would not need new oil investment
after 2021.
But last month, the agency said: "The reduction in global spare capacity underscores the need to increase investment to meet future demand
.
" ”

Amin Nasser, chief executive of Saudi Aramco, said earlier this month: "Currently, the industry's spare capacity is reaching every 3-4 million barrels per day (bpd), which provides some moderation for the market, however, I am worried about the buffer .
.
.
It may decrease, especially next year when demand is expected to pick up further.
"

OPEC+ strives to increase production as planned

Recently, Reuters released a report in which Energy Aspects said, "This report provides data support for our long-held assumption that more and more member states are running out of spare capacity
.
" ”

Some member states have struggled to meet quota requirements in recent months, so OPEC+ actually adds less than 400,000 bpd
per month.

Ironically, but predictably, Nigeria was one of the most backward countries in the early deals, with the country's current production below the quota of about 200,000 bpd due to lack of investment, and frequent force majeure events that have resulted in its production well below what the agreement allows
.

Will OPEC+ change course?

While OPEC+ is struggling to meet the 400,000-barrel-per-month production increase, the market has been speculating whether the group will work with other major oil consumers such as China, Japan, India and South Korea at next week's meeting to respond
to the U.
S.
-announced release of its strategic oil reserves.

With a surplus expected as early as the first quarter of 2022 and a surge in the COVID-19 pandemic in Europe (Germany's lockdown is not excluded), the impact on OPEC+'s route next week could be greater
than the release of strategic oil reserves.