The global oil market is calling out for a substantial increase in supplies, but OPEC+ is expected to provide only a fraction of what consumers are demanding.

International crude prices have soared to a two-year high above $75 a barrel as demand bounces back from the pandemic slump. With talk swirling of a return to $100 oil and fears over inflation mounting, the International Energy Agency is urging the Organization of Petroleum Exporting Countries and its partners to fill a supply shortfall.

When it meets next week, the alliance led by Saudi Arabia and Russia is widely expected to revive some more of its halted output, according to a Bloomberg survey, and delegates from the group say discussions are already underway.

Yet with Riyadh determined to proceed cautiously, market watchers expect any increase to leave the market wanting more.

“This market’s on fire,” said Bill Farren-Price, a director at research firm Enverus. “The Saudis don’t seem inclined to signal a substantial increase in supplies. But even if OPEC+ adds barrels, prices are going to stay strong.”

OPEC has only gradually revived production this year.

The 23-nation alliance has restored roughly 40% of the almost 10 million barrels of daily production it shuttered when demand collapsed last year. Ministers will gather on July 1 to assess the next step.

Russia is considering making a proposal that the coalition increase supplies, and delegates say a hike in August is being informally discussed. Yet several of the cartel’s officials also say privately that opening the taps now would be a mistake when fellow member Iran is engaged in diplomatic talks that could result in a major revival in its exports.

Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said on Wednesday that he maintains a cautious stance, but doesn’t rule out action. He acknowledged that OPEC+ has a role in “taming and containing” inflation.

Modest Increase

Market observers widely expect that a hike of some kind will be agreed next week, with the extra supply hitting the market in August. All but two of 15 analysts, traders and refiners in a global survey by Bloomberg News predicted that the coalition will tap its sizable spare production capacity.

Yet the average increase they forecast for August was about 510,000 barrels a day -- barely a quarter of the global supply deficit that OPEC+ itself anticipates during that month.

Those expectations could be confounded. OPEC+ has blindsided analysts several times this year -- increasing output when steady supplies were expected and vice versa. Prince Abdulaziz has deliberately set out to wrong-foot speculators, and forecasters could again be surprised at this meeting.

Nonetheless, traders are wagering real money that the group won’t fully plug the supply gap, with Brent futures holding firm this week despite talk of a production increase.

“The market hardly blinked,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London. “Extra barrels could easily be absorbed by the seemingly insatiable thirst for oil as the global economy recovers.”

Key Player

Expectations have largely been shaped by the posture of Prince Abdulaziz, the coalition’s central figure.

The Saudi minister has routinely urged the group to move carefully in restoring supplies, and last week said this guarded approach “is paying off.” By reviving halted supplies gently, OPEC+ has stabilized the recovery of a market that a year ago saw prices crash below zero.

On Wednesday, the Prince once again stressed that OPEC and its allies “cannot discount any vicious return of Covid cases” and the risk that poses to fuel use.

Several nations in the coalition would like OPEC+ to maintain that prudence by keeping supplies steady in August, according to delegates who asked not be identified. Much of their concern stems from fellow member Iran, which is engaged in negotiations to lift U.S. sanctions on its petroleum exports.

While those talks have hit an impasse, Tehran could ramp up output by 1.4 million barrels a day if it secures an accord with Washington, the Paris-based IEA estimates. That could plug about two-thirds of the deficit projected by OPEC+ during the rest of this year, a report compiled by the group indicates.

The alliance’s motivation for moving slowly could also be financial, Enverus’s Farren-Price said. Oil at $75 a barrel is replenishing coffers that were severely strained by last year’s market slump. “The group wants to sustain current prices or higher ones, and they’ll probably succeed,” he said.

That won’t be difficult in a market that, in the words of Trafigura Group Chief Economist Saad Rahim, is “hungry for oil.” The Singapore-based trading giant, along with Royal Dutch Shell Plc and Bank of America Corp., is warning that prices could be heading for $100 a barrel for the first time since 2014.

Boosted by the U.S. holiday driving season, global fuel consumption is outstripping supplies by 3 million barrels a day, Goldman Sachs says. That deficit means fuel stockpiles around the world are shrinking rapidly.

“Demand is surging right now,” Jeff Currie, Goldman’s head of commodities research, said in a Bloomberg Television interview. “Even if OPEC starts bringing the supply on in August or beyond, this market’s really tight between now and Labor Day.”

Source: World Oil www.worldoil.com