After the Covid crisis, what's next for OPEC+?

LONDON, United Kingdom — The OPEC+ group of major oil-producing nations holds a key output meeting on Wednesday.

Here is a look at the cartel's current production agreement and its outcome as well as scenarios for the future as the group faces another challenge following Russia's invasion of Ukraine:

What was 2020 deal's aim?

OPEC+ in April 2020 decided to drastically cut its output by 9.7 million barrels a day to stop the collapse of oil prices during the pandemic.

It worked: prices, which were slipping into negative territory, rose.

Faced with the recovery in demand, the alliance began to marginally increase output last year, agreeing to add some 400,000 barrels per day to the market. It agreed to slightly increase production in June.

The group initially gave itself until April 2022 for a return to normal, before adding a few more months because of the pandemic's uncertainties.

"Technically, the deal runs through to end of the year," Matthew Holland, geopolitical analyst for research consultancy Energy Aspects.

But they "finished unwinding their cuts earlier than expected," he said.

"All the production cuts agreed in May 2020 will have been reversed again in August, at least on paper," said Carsten Fritsch, commodity analyst at Commerzbank.

Why isn't OPEC+ meeting its quotas?

The cartel regularly fails to meet its targets.

The actual production volume in June was around 2.8 million barrels per day below the agreed level, according to the International Energy Agency.

According to Fritsch, "it is unlikely that this discrepancy can be reduced significantly in the two subsequent months".

Craig Erlam, analyst at OANDA trading platform, said there is "a lot of lost ground to make up".

Extended political crises as well as a lack of investment and maintenance during the pandemic is crippling oil infrastructure.

Several OPEC+ countries like Angola and Nigeria cannot pump more, already seeming to be at maximum capacity.

Russian production has also fallen after Moscow was hit by Western sanctions over its war in Ukraine.

Only Saudi Arabia and the United Arab Emirates appear to have spare capacity.

But Riyadh, OPEC's de facto leader, said it was not ready to make up for the underperformance of the cartel's other members.

Any such action by Saudis, under pressure from the West fretting over soaring oil prices, could actually "jeopardise further cooperation with Russia", Fritsch warned.

What is expected?

The outcome of Wednesday's meeting is less predictable than previous gatherings.

Fritsch said the cartel could decide to raise production targets for September again "to close the gap between actual production and the originally agreed production volume".

The Commerzbank expert said this would allow Saudi Arabia and the UAE to further increase their production without violating the agreement.

Analysts expect an extension to the current deal, which stabilised the market during the pandemic.

For Energy Aspects analyst Holland, the OPEC+ members could agree a multi-month deal running through to the end of 2022, "and then look to agree something much longer term in December".

The group will meet at its headquarters in Vienna in person for the first time since the pandemic, which led to monthly meetings held via video link.