OPEC+ Considers Modest Oil-Production Increase, Output Freeze

The broader alliance, called OPEC+, agreed last year to roll out small, monthly increases as part of a plan to raise output to prepandemic levels. That deal ends in August, although many members are producing below their allotted quotas. Meanwhile, oil prices, which soared as Covid-19 lockdowns eased and economic activity picked back up, have slipped in recent weeks on worries about global growth. The drop has erased most of the gains seen after Russia’s invasion of Ukraine in late February.

OPEC+ members are set to meet virtually on Wednesday to decide on a production plan for September. The U.S. and other major oil-consuming Western nations have called on the alliance to pump more oil. Russia prefers higher prices to make up for lost exports due to Ukraine-related sanctions.

“They need to find a balance between the U.S. and Russia,” said an OPEC delegate. Importantly, OPEC needs to do this even as it figures out if physical oil demand falls enough to bring market prices down, some delegates noted.

Russia’s membership in OPEC+ is vital to the alliance, OPEC’s new secretary-general, Haitham al-Ghais, told a Kuwaiti newspaper over the weekend. “Russia is a strategic partner and one of the largest producers, and having them with us…is essential to the success of the agreement,” said Mr. al-Ghais, who took charge of the organization on Monday.

Ahead of the alliance’s meeting, Saudi Energy Minister Prince Abdulaziz bin Salman met Russian Deputy Prime Minister Alexander Novak, who is in charge of Moscow’s OPEC+ policies, in Riyadh, Saudi Arabia, on Friday.

Meanwhile, Saudi officials have sought to temper expectations, reiterating that the kingdom would do what is needed to balance the market if there is a shortage of supply.

One option is to agree on a ceiling for the entire group with no individual quotas, which would allow members such as Saudi Arabia and the United Arab Emirates, with so-called spare capacity, to pump more oil and make up for those not meeting their production targets, the delegates said.

OPEC+ pumped nearly 3 million barrels a day less than its collective production target of about 42 million barrels a day in May, according to an independent assessment report commissioned by OPEC. The shortfall was due mainly to falling production in sanctions-hit Russia and chronic output problems in Nigeria, Angola and some other countries, according to OPEC delegates.

Still, the group has limited room to maneuver as the member with the biggest spare capacity, Saudi Arabia, is nearing its pumping limit. The kingdom is currently producing about 10.5 million barrels a day, according to people familiar with Saudi oil operations. They say the country would struggle to produce 11 million barrels a day for more than a few months at a stretch and 12 million barrels a day for more than a few weeks.

Overall, spare capacity is set to almost halve to 1.7 million barrels a day next year, another report commissioned by OPEC says. It will shrink to as little as 400,000 barrels a day in 2024 as producers respond to rising oil demand, it says.

OPEC also sees global oil-demand growth slowing to 2.7 million barrels a day next year, from 3.4 million barrels a day in 2022. The cartel expects global growth to ease to 3.2% in 2023 from 3.5% this year as economies in Europe and the U.S. suffer from soaring inflation and steps by central banks to raise interest rates. Last month, the International Energy Agency, which advises energy consumers, cut its forecasts for oil demand by 240,000 barrels a day this year.

Write to Benoit Faucon at benoit.faucon@wsj.com and Summer Said at summer.said@wsj.com