Just like every month since last summer, officials from OPEC and its allies met by teleconference on Thursday and agreed to continue their program of modest additions to the market. The producer group, which has 23 members including Saudi Arabia and Russia, has released a statement saying it will add 432,000 barrels per day in June.
Despite the vote, there is widespread skepticism about what they will add, if anything. Many of its own members are struggling to meet their production quotas. and it was sanctions and government releases from strategic oil reserves they are now exerting a great deal of influence on world oil markets, leaving OPEC Plus commitments far less important.
At this point, the group is flirting with irrelevance. “OPEC Plus has lost its reliability and credibility,” Kamel Al-Harami, an oil analyst, recently wrote in Arab Times, a Kuwaiti newspaper.
Once again the group stated that “the consensus on the outlook indicated a balanced market”.
The brief statement also noted what it called “the effects of geopolitical factors”, an apparent reference to Russia’s assault on Ukraine, and “pandemic issues”.
More importantly, however, the group appears to be approaching the ceiling on the amount of oil it can produce. Russia, for example, is expected to pump as much as Saudi Arabia, but is instead seeing its production drop due to Western sanctions.
Many other members, including Angola and Nigeria, are also failing to meet their quotas. As a result, OPEC Plus production is more or less flat.
OPEC Plus, which has been a major factor in oil markets in recent years, has largely lost its mojo due to the Russian invasion of Ukraine. What matters for the oil markets now is the tightening of Western sanctions against Russia, a major producer. Key sanctions decisions affecting both the group’s production and potentially world oil demand are being made in Washington and increasingly by the European Union.
Brussels has proposed to impose bans on Russian oil imports and other restrictions that, analysts say, could prove disruptive to both oil markets and economies. These moves helped push prices higher. Brent crude rose nearly 3% on Thursday to $ 113.38 a barrel.
Long-standing sanctions are also hindering the oil industries in Venezuela and Iran, both of which are longtime members of OPEC.
There is also little incentive for the group to deviate from a modest monthly production increase schedule agreed after tough negotiations in July. Saudi Arabia, which largely calls OPEC strikes, has so far been unwilling to take actions that could embarrass or irritate Russia, the other OPEC Plus co-chair.
The Russia-Ukraine war and the global economy
Although Russia is no longer in a position to serve as the leader of OPEC Plus, analysts say the Saudis may be waiting for a rapprochement with the Biden administration before taking a firmer hand. trying to manage the markets.
The Saudis and the United Arab Emirates, the two countries in the group that have the capacity to increase production, are benefiting from the situation. The Saudis are producing at relatively high levels of around 10.4 million barrels a day and at the same time are raising huge amounts of high-priced money.
“They are getting both high volumes and good prices,” said Bhushan Bahree, an analyst at S&P Global Commodity Insights, a research firm. “What is there to complain about?”
Several factors are also helping to reduce the motivation for OPEC Plus to add more oil. As Russian production declines, zero-COVID blockades in China have consequently weakened demand from the largest oil importer.
The United States and other consuming countries are also in the early stages of releasing what is expected to be an average of over 1 million barrels per day over six months. Analysts say the Saudis may understand that there is no point in adding more production in the midst of this glitz.
And they may not have much more oil to sell. Mr. Bahree estimates that the Saudis and the UAE can only increase by about 1.8 million barrels a day, less than some predictions about how much Russian production could decline.