With analysts warning of a looming oil supply crisis, OPEC and its allies, including Russia, decided on Thursday to stick with their previously agreed plan of modest monthly increases. The group, known as OPEC Plus, said it would increase oil production in May by 432,000 barrels a day, a slight uptick from the usual 400,000 barrels a day increase for technical reasons.
In a press release after what was probably a very short meeting, OPEC Plus repeated its thinking from the previous month. The group said the outlook was for “a well-balanced market” and that recent price volatility “was not caused by fundamentals, but by ongoing geopolitical developments,” apparently signifying the war in Ukraine.
On the contrary, many analysts warn that with oil storage tanks at low levels, sanctions over the war in Ukraine and an ongoing buyers strike of sorts against Russian oil, a major supply shortage could develop, reducing the global economic growth and fueling inflation.
OPEC Plus acted just before the White House announced plans to release up to 180 million barrels of oil from emergency stockpiles in response to rising oil prices and in anticipation of potential spikes in demand or dips in oil prices. the offer. White House officials said they expected other countries to announce additional contributions at an International Energy Agency meeting on Friday.
After months of unsuccessfully asking OPEC Plus to increase oil production to calm choppy markets, Washington appears to have decided to take charge.
“We know that consumers need relief now, and that is why the president has acted,” a senior administration official said.
Prince Abdulaziz bin Salman, Saudi Arabia’s oil minister, likes to describe the Organization of the Petroleum Exporting Countries as a kind of central banker for oil, smoothing out market fluctuations by adding and subtracting supplies, though analysts question the effectiveness with which it has performed this role. However, under the current circumstances, OPEC Plus may not be able to act because Russia, while not a member of OPEC, has been an integral part and co-chair of the larger group since it was formed in 2016.
Alexander Novak, Russia’s deputy prime minister, is said to have participated in Thursday’s teleconference. The decision to increase oil production could have been seen as helping the West in support of Ukraine and damaging to Moscow’s interests.
OPEC, whose de facto leader is Saudi Arabia, seems to be trying to ignore the problem caused by the presence of Russia in the group. For example, OPEC’s latest oil market report, released in mid-March, forecast Russia’s oil production to be 11.8 million barrels per day in 2022, an increase of nearly one million barrels per day. relative to 2021 levels.
Not lowering those estimates because of the war and sanctions “in part reflects the political sensitivity of lowering forecasts for Russia,” analysts at Energy Aspects, a research firm, wrote.
The Russo-Ukrainian War and the Global Economy
Other analysts, including those at the International Energy Agency in Paris, are forecasting a substantial decline in the range of three million barrels a day as sanctions kick in and companies like Shell and France’s TotalEnergies phase out purchases of Russian oil. . In particular, diesel supply concerns fuel, which Russia exports in large volumes to Europe, are emerging.
And OPEC Plus doesn’t have much more oil to contribute to the world market. The group is already falling about 1.3 million barrels a day short of its targets, and is unlikely to come close to adding 432,000 barrels a day in May. Russia, for example, along with Saudi Arabia, is marked down to increase by more than 100,000 barrels per day, to 10.5 million; Due to sanctions, it is very unlikely that Moscow will be able to increase production.
Analysts say that only Saudi Arabia and the United Arab Emirates have the capacity to add substantial volumes of additional oil. These producers may be holding back until it becomes clearer how much Russian production will be lost. There are also questions among market watchers about how much oil they could add quickly.
The news that the Biden administration would release one million barrels per day from US strategic reserves starting in May, comparable to about 1 percent of global production, may also encourage these countries to save the volumes. additional ones they have for a more opportune moment.