OPEC considers two scenarios to adjust oil production

OPEC considers two scenarios to adjust oil production

JEDDAH, Saudi Arabia—The Organization of the Petroleum Exporting Countries and its allies are set to debate at least two scenarios that would increase oil production beyond current levels, according to people familiar with the discussions.

If the group ultimately chooses to increase production, there’s a hitch: The cartel’s internal simulations suggest the global crude market could experience a glut if producers relax their current curbs on production too quickly.

A group of key OPEC producers and Russia-led allies are set to hold a consultative meeting on Sunday as rising tensions in the Middle East add to output outages in the region. No decision will be made at the summit. Those gathered will merely debate the issues and make recommendations to be acted on at OPEC’s next full meeting in Vienna in June.

OPEC and its partners agreed in December to output cuts of 1.2 million barrels a day. The curbs have led to a rebound in oil prices CLN19, -0.08% this year, but the agreement ends in June. The officials gathering this weekend are looking for a way forward—for the second half of this year—that won’t upset oil markets.

One scenario, presented to delegates late Friday, assumes OPEC and non-OPEC countries are fully complying with their commitments through May and June, the people said. Since some countries are currently cutting more than agreed, if all the countries reverted to the December agreed levels, their collective output would be the equivalent of an increase of 396,000 barrels a day for participating members of the cartel and 411,000 barrels a day for the Russia-led non-members from April levels, based on OPEC data.

Another scenario would allow individual producers to use as their baseline for cuts the maximum level they reached in one of the last four months of 2018—before they started a new round of cuts of 1.2 million barrels a day—throughout the second half, the people said.

The scenario of strict compliance to the December agreement would lead to a decline in inventories in the second half but the other simulation would lead to a new increase above the five-year average by the fourth quarter, the people said.

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