Last month, oil markets were shaken by a war that sent prices skyrocketing and threatened severe shortages of crude oil and other petroleum products.
But when most of the world’s largest oil producers meet by phone on Thursday to discuss supplies, analysts are not expecting much action. Officials from the Organization of the Petroleum Exporting Countries (OPEC) and Russia are likely to do little more than announce the usual modest monthly production increases, leading to questions about how much oil the group actually has in the reservoir.
Western sanctions imposed on Russia for its invasion of Ukraine are likely to lead to the loss of significant quantities of crude oil and petroleum products, especially diesel fuel, from the market. Indeed, major buyers of Russian oil, such as Shell and Total Energy, have said they will gradually purge oil of Russian origin from their extensive networks.
“These losses will continue because Russia will likely remain the most sanctioned country on Earth for the foreseeable future,” Helima Croft, head of commodities at RBC Capital Markets, an investment bank, wrote in a note to clients on Wednesday.
Russia is one of the world’s three largest oil producing countries, along with the United States and Saudi Arabia, and exports about eight million barrels per day of crude oil and products. The International Energy Agency, the Paris-based group, estimates that up to three million barrels per day of Russian oil, or about 3 percent of global supply, could be shut down soon in what “could turn into the biggest supply crisis in decades”. . “
The agency said in its latest oil market report that only Saudi Arabia and the United Arab Emirates can produce much larger quantities of crude, “which may help compensate for the Russian shortage.”
However, these countries – the de facto leader of OPEC and a key ally – do not seem inclined to act, a situation that appears puzzling given their long-standing security and trade association with the West.
“The broader question is: Do they even face some technical hurdles” to bring in significant additional quantities of oil online? said Richard Bronze, head of geopolitics at Energy Aspects, a research firm. Saudi Arabia says it has the capacity to produce about 12.5 million barrels per day, more than two million barrels per day more than the last production.
To be sure, most members of the group of OPEC and its allies, known as OPEC Plus, have already run out of firepower, with countries such as Nigeria and Angola unable to keep pace with the latter’s goals. The group is likely to add only a small part of the production increase it announced on Thursday, according to Mr Bronze’s figures. It is clear that Russia will not be able to increase production, because its unsold oil storage tanks are already running out.
Moreover, later this year the group is close to ending the sharp production cuts in early 2020 that helped boost the market when demand and prices plummeted in the early days of the pandemic.
The Saudis and Emiratis may think that with prices rising and the outcome of the conflict in Ukraine far from clear, now is not the time to unleash the resources they have left. While events such as the coronavirus shutdown in China may lower demand, oil consumption is likely to be higher in the summer driving season and production may be lower.
The fact that closing prices for Brent crude futures, the international standard, have swung in recent weeks from nearly $130 a barrel to less than $100, allows the group to argue, though unconvincingly, that Geopolitics, not shortages, add on top of the price And continue to take in huge amounts of cash.
“The current volatility is not caused by changes in market fundamentals, but by current geopolitical developments,” the group said after its last meeting on March 2.
In addition, the International Energy Agency is in the early stages of Coordination of the release of 60 million barrels of oil, announced on March 1, from the reserves of the United States and about two dozen other countries. Analysts say that these additions to supplies reduce the incentive for OPEC Plus to try to influence the markets.
Also, OPEC Plus does not seem ready to act against the interests of Russia, the co-chair of the group, which is supposed to oppose an additional increase in production that would help countries live without Russian crude.
The UAE, in particular, appears sympathetic to Russia’s concerns in the conflict with Ukraine and is threatened by the prospects for a democratic revolution represented by the Ukrainian government.
The Russo-Ukrainian War and the Global Economy
“There is a convergence between Russia and authoritarianism in general” among UAE leaders, said Karen Young, a senior fellow at the Middle East Institute, a Washington think tank.
OPEC+ officials have also expressed frustration at being asked to resolve what they see as problems caused by poorly thought Western policies on climate change. OPEC officials say they are required to increase production as Western governments and investors rely on energy companies to cut back on investments in oil and gas 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 dispense with fossil fuels before sufficient alternative resources such as wind and solar power become available.
“We cannot and should not disconnect the current energy system before we build a new one,” Sultan Al Jaber, CEO of Abu Dhabi National Oil Company, said at the recent Atlantic Council conference.
However, there is little sign that the West is backing away from oil and gas, especially from unreliable suppliers such as Russia. Indeed, Moscow’s use of energy for political pressure on European countries may be an incentive for Western countries to reduce consumption of fossil fuels faster. Germany, for example, Move quickly to sever energy ties With Moscow, which has always been its main supplier.
“The urgent need to accelerate a just transition to clean energy remains a top priority, and it must be accelerated,” Jennifer M. Granholm, the US Secretary of Energy, said last week.
The Saudis and the UAE have other reasons not to rush into compliance with Western demands. They are concerned about the intensification of missile attacks on energy facilities and other targets in their country by the Yemen-based Houthi group, and point out that Washington is not doing enough to stop them.
Saudi Arabia recently warned that it will not be responsible if these incidents lead to a halt in oil exports to the world. These countries are also skeptical of Washington’s efforts to restore the nuclear deal with Iran, thus allowing Tehran to sell more oil. The Saudis blame Iran for supplying the Houthis with missiles directed against them.
Meanwhile, analysts say there is little reason to believe that the current oil crisis will not get worse as buyers shy away from Russian oil. “I am amazed at the lower prices,” said David Wish, chief economist at Vortexa, a data analytics company.
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