OPEC and its partners are poised to reject proposals this week to fill the supply vacuum created by Russia’s declining oil supplies.
According to various industry surveys, the 23-nation group led by Saudi Arabia will most likely adopt plans for another minor output boost set for May when it meets on Thursday. Several OPEC+ delegates privately foresee this conclusion, and public statements from important governments support this prediction.
With oil prices hovering above $100 per barrel, a shortage of extra supplies to substitute for Russian losses threatens to exacerbate the inflationary spiral that jeopardises the global recovery and puts millions of people in a cost-of-living crisis. Leading importers are asking OPEC+ countries with surplus production capacity to open the taps quickly, but the group’s core members have been unconvinced thus far.
“If the market is balanced and the resources are in the market, we will not add resources,” UAE Energy Minister Suhail Al-Mazrouei said at a conference in Dubai on Monday. He suggested that key consumers like the United States should accept the group’s judgement on how to manage the market effectively.
According to recent surveys, the cartel will keep to its goal for a 432,000 b/d rise in May. While this is a minor rise above earlier 400,000-barrel increases as OPEC+ fine-tunes individual countries’ output limits, most members have struggled to supply the entire quantity agreed for some months.
While Saudi Arabia and the United Arab Emirates have stated that they are hesitant to pump faster because they believe there is no shortage in international markets yet, the Persian Gulf giants also appear to be acting out of loyalty to Moscow.
“Russia is an essential member,” Al-Mazrouei said on Monday, adding that OPEC+ should stay out of politics. He went on to say that the committee isn’t concerned about whether Russian supply reductions, in particular, are producing an imbalance.
When the alliance last convened, it took a similar strategy at the beginning of this month. Saudi Energy Minister Prince Abdulaziz bin Salman avoided any talk about the Russian crisis, and the meeting was rushed to a close after only 13 minutes.
Riyadh and Abu Dhabi want to keep their connections with Moscow, which has helped them gain more influence over global petroleum markets and reduce their political reliance on the United States. This is especially advantageous for Saudi Crown Prince Mohammed bin Salman, who the Biden administration has marginalised in the aftermath of the murder of writer Jamal Khashoggi.
Staying the path will irritate the Biden administration and other foreign leaders who want to isolate Russian President Vladimir Putin. It might also exacerbate the agony for consuming countries, who have asked OPEC+ to reduce market stress via the International Energy Agency.
Even while China and India surreptitiously continue imports, the de facto embargo on Russian supply observed by many refiners and importers has unquestionably created a vacuum.
According to calculations based on statistics from the Energy Ministry’s CDU-TEK unit, Russia’s average oil output fell below 11 million b/d from March 16 to 27, a level not seen since the start of the year.
Before the invasion, global markets were strained as supplies struggled to keep up with the rapid rebound in gasoline demand following the epidemic. Part of the challenge rests with OPEC+, which is attempting to resurrect all of the output suspended during the Covid downturn due to decreased investment in nations like Angola and Nigeria.
Brent futures have dropped roughly 7% this week, first as China re-imposed lockdowns to battle new Covid-19 infections and then as Russia promised to reduce military actions surrounding Kyiv. Even if discussions over a nuclear deal that would lift US sanctions remain in limbo, the threat of an infusion of Iranian supply looms over the market.
With so much uncertainty, even without present political factors, OPEC+ may have chosen the cautious option.