OPEC and Russia to Meet as War Loses Oil Market in Ukraine


Last month, oil markets were rocked by a war that caused a price jump and threatened a critical deficit in crude oil and other petroleum products.

But analysts aren’t expecting much action as many of the world’s biggest oil producers meet via teleconference on Thursday to discuss supply. Officials from OPEC and Russia are likely to do little more than announce their usual modest monthly production increases, raising questions about how much oil the group actually has in the tank.

Western sanctions imposed on Russia over its invasion of Ukraine are likely to result in significant loss of both crude and petroleum products from the market, particularly diesel fuel. Big buyers of Russian oil, such as Shell and TotalEnergies, have said they will gradually flush Russian-origin oil from their extensive networks.

“These losses will be permanent as Russia will likely remain the most sanctioned country in the world for the foreseeable future,” Helima Croft, head of commodities at RBC Capital Markets, an investment bank, said in a note to clients Wednesday.

Russia is one of the three largest oil producers in the world, along with the United States and Saudi Arabia, and exports about eight million barrels per day of crude oil and products. The Paris-based group, the International Energy Agency, estimates that as much as 3 million barrels per day of Russian oil, or about 3 percent of the world’s supply, could soon be shut down in “what could turn into the biggest supply crisis in decades.” ”

Only Saudi Arabia and the United Arab Emirates could produce significantly more crude, “that could help bridge the gap in Russia,” the agency’s latest oil market report said.

Yet these countries, the de facto leader of OPEC and a key ally, do not seem inclined to take a stance that seems confusing given their long-standing security and trade ties with the West.

“The broader question is: Do they even face some technical hurdles to get the massive amount of supplemental oil online?” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm. Saudi Arabia says it has a production capacity of around 12.5 million barrels per day, with the final production over 2 million barrels per day.

Many of the OPEC Plus members have already run out of firepower, as countries like Nigeria and Angola haven’t been able to keep up with the latest targets. The Mr. Bronze figures are likely to add only a small fraction of the production increase the group announced on Thursday. Russia clearly will not be able to increase production because storage tanks for unsold oil are already running out.

Also, the group is nearing the end of this year to resolve the steep production cuts of early 2020 that helped support the market as demand and prices plummeted in the early days of the pandemic.

The Saudis and the United Arab Emirates may feel that now is not the time to free up their remaining resources, as prices fluctuate and the outcome of the conflict in Ukraine is far from clear. While events such as curfews in China are likely reducing demand, oil consumption is still likely to be higher and production potentially lower during the summer driving season.

The closing prices of the international benchmark Brent crude oil futures have slumped from around $130 to less than $100 a barrel in recent weeks, allowing the group to argue unconvincingly, if not convincingly: geopolitics rather than deficits adds a premium to the price and keep getting large amounts of cash.

“The current volatility is driven by current geopolitical developments, not changes in market fundamentals,” the group said after its last meeting on March 2.

Also, the International Energy Agency is in the early stages of the project. Coordinating 60 million barrels of oil releaseIt was announced on March 1 from the reserves of the United States and about two dozen other countries. Analysts say these continued additions to supply have reduced the incentive for OPEC Plus to try to influence markets.

Also, OPEC Plus does not appear ready to act against the interests of Russia, the co-chairman of the group, who will likely oppose an additional production increase that would help countries live without Russian crude.

The United Arab Emirates in particular sympathizes with Russia’s concerns in its conflict with Ukraine and is threatened by the prospect of democratic revolution represented by the Ukrainian government.

“There is an affinity between Russia and the authoritarians in general,” said Karen Young, a senior fellow at the Middle East Institute, a Washington-based research organization.

There has also been disillusionment among OPEC Plus officials who have been asked to address what they see as problems posed by ill-considered Western policies on climate change. OPEC officials say they are being asked to increase production, while at the same time Western governments and investors are leaning on energy companies to cut oil and gas investments to meet climate goals.

The argument among many producing countries in the Middle East is that painfully high oil and gas prices are the bitter fruit of trying to give up fossil fuels before adequate alternative sources such as wind and solar power are available.

“We cannot and must not unplug the existing energy system without building a new one,” Sultan al Jaber, CEO of Abu Dhabi National Oil Company, said at a recent Atlantic Council conference.

Yet there are few signs that the West is backing down on oil and gas, particularly from potentially unreliable suppliers like Russia. In fact, Moscow’s use of energy to exert political pressure on European countries may encourage Western countries to reduce their fossil fuel consumption faster. Germany, for example act quickly to break energy bonds with Moscow, which has long been its main supplier.

“The urgent need to accelerate the just transition to clean energy remains a top priority and must be accelerated,” US energy secretary Jennifer Granholm said last week.

The Saudis and the United Arab Emirates have other reasons not to rush to comply with the West’s demands. They are concerned about the massive missile attacks on energy facilities and other targets in their country by the Yemen-based Houthi group and argue that Washington is not doing enough to stop them.

Saudi Arabia recently warned that these events would not be responsible for halting oil exports to the world. These countries are also skeptical of Washington’s efforts to re-establish the nuclear deal with Iran, thereby allowing Tehran to sell more oil. The Saudis accuse Iran of supplying the missiles launched against the Houthis.

Meanwhile, analysts say there’s little reason to think the current oil crisis won’t get worse as buyers shy away from Russian oil. “I was surprised at how low the prices were,” said David Wech, chief economist at Vortexa, a data analytics company.



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