OPEC Plus is moving forward with plans for a modest increase in oil releases

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OPEC Plus is moving forward with plans for a modest increase in oil releases

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With analysts warning of an impending oil supply crisis, OPEC and its allies, including Russia, agreed Thursday to stick to their previously agreed plan of modest monthly increases. The group, known as OPEC Plus, said it will increase oil production in May by 432,000 barrels per day, a slight increase from the usual 400,000 barrels per day increase for technical reasons.

In a press release following what was likely a very brief meeting, OPEC Plus reiterated the thinking from a month earlier. 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”, ostensibly signifying the war in Ukraine.

Conversely, many analysts warn that with oil storage tanks at low levels, sanctions for the war in Ukraine and some kind of ongoing buyer strike against Russian oil, a major supply crisis could develop, reducing the global economic growth and fueling inflation.

The OPEC Plus announcement came shortly before the White House made public plans to release up to 180 million barrels of oil from emergency reserves in response to rising oil prices and in anticipation of possible spikes in demand or decreases in supply. White House officials said they expected other countries to announce further contributions at an International Energy Agency meeting on Friday.

After months of unsuccessfully asking OPEC Plus to increase oil production to calm markets in turmoil, Washington appears to have decided to take the lead.

“We know consumers need relief now, which is why the president took action,” said a senior administration official.

Prince Abdulaziz bin Salman, Saudi Arabia’s oil minister, likes to describe OPEC as a kind of central oil banker, softening market fluctuations by adding and subtracting supplies, although analysts dispute how effectively it has played this role. . Under current circumstances, however, 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 its inception in 2016.

Alexander Novak, Russian Deputy Prime Minister, allegedly attended Thursday’s conference call. The decision to increase oil production may have been seen as helping the West in support of Ukraine and detrimental to Moscow’s interests.

OPEC, whose de facto leader is Saudi Arabia, seems to want to ignore the problem caused by Russia’s presence in the group. For example, OPEC’s latest oil market report, released in mid-March, predicts that Russia’s oil production will be 11.8 million barrels per day in 2022, an increase of nearly 1 million barrels per day. day compared to 2021 levels.

The failure to reduce those estimates due to the war and sanctions “partly reflects the political sensitivity of the downgrading of the forecasts for Russia,” wrote analysts from Energy Aspects, a research firm.

Other analysts, including those from the International Energy Agency in Paris, predict a substantial decline in the order of 3 million barrels per day due to the escalation of sanctions and the phasing out of Russian oil purchases by companies such as Shell and France’s TotalEnergies. In particular, concerns are emerging over supplies of diesel, which Russia exports in large volumes to Europe.

And OPEC Plus doesn’t have much more oil to contribute to the world market. The group is already losing around 1.3 million barrels per day from its targets and is unlikely to come close to adding 432,000 barrels per day in May. Russia, for example, together with Saudi Arabia, is set to increase by over 100,000 barrels per day, to 10.5 million barrels per day; due to the sanctions, it is very unlikely that Moscow will be able to increase production.

Analysts say that only Saudi Arabia and the UAE have the capacity to add substantial volumes of additional oil. These producers could hold back until it becomes clear how much Russian production will be lost. There are also doubts among market watchers as to how much oil they could add quickly.

The news that the Biden administration will release 1 million barrels a day from US strategic reserves starting in May, comparable to about 1% of global production, it can also encourage these countries to save the additional volumes they have for a more convenient time.

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