Just as they have every month since last summer, officials from OPEC and its allies met via teleconference on Thursday and decided to continue their program of modest additions to the market. The producers’ group, which has 23 members including Saudi Arabia and Russia, issued a statement saying they would add 432,000 barrels a day in June.
Despite the vow, there is widespread skepticism about how much they will add, if anything. Many of the group’s own members are struggling to meet their production quotas. And war, sanctions and government releases from strategic oil reserves are wielding major influence on the world’s oil markets, leaving the pledges of OPEC Plus 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 said that “consensus on the outlook pointed to a balanced market.”
The brief communiqué also noted what it called “the effects of geopolitical factors,” an apparent reference to Russia’s assault in Ukraine, and “issues relating to the pandemic.”.
More important, though, the group seems to be approaching the ceiling of how much oil it can produce. Russia, for instance, is supposed to be pumping as much as Saudi Arabia but is, instead, seeing its output decline because of Western sanctions.
Several other members, including Angola and Nigeria, are also failing to meet their quotas. As a result, the output of OPEC Plus is roughly flatlining.
OPEC Plus, which has been a major factor in the oil markets in recent years, has largely lost its mojo because of Russia’s invasion of Ukraine. What matters to the oil markets now are the tightening Western sanctions on Russia, a major producer. The key decisions on sanctions that influence both the group’s production and, potentially, global demand for oil are being made in Washington and, increasingly, by the European Union.
Brussels has proposed imposing bans on imports of Russian oil and other restrictions that, analysts say, could prove disruptive to both the oil markets and economies. Those moves have helped propel prices upward. Brent crude rose nearly 3 percent on Thursday to $113.38 a barrel.
Longstanding sanctions are also crimping the petroleum industries in Venezuela and Iran, both longstanding members of the Organization of the Petroleum Exporting Countries.
There is also little incentive for the group to depart from a program of modest monthly production increases that was agreed after tricky negotiations in July. Saudi Arabia, which largely calls the shots in OPEC, has so far been unwilling to take actions that might embarrass or irritate Russia, the other co-chair of OPEC Plus.
The Russia-Ukraine War and the Global Economy
A far-reaching conflict. Russia’s invasion on Ukraine has had a ripple effect across the globe, adding to the stock market’s woes. The conflict has caused dizzying spikes in gas prices and product shortages, and is pushing Europe to reconsider its reliance on Russian energy sources.
Although Russia is clearly no longer able to function as a 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 do have the ability to increase output, are benefiting from the situation. The Saudis are producing at relatively high levels of around 10.4 million barrels a day and are at the same time raking in enormous amounts of cash from high prices.
“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 rationale for OPEC Plus to add more oil. While Russian production is declining, the zero-Covid lockdowns in China have correspondingly sapped demand in 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 one million barrels a day on the market over six months. Analysts say the Saudis may figure that there is little point adding more production in the midst of this gusher.
And they may not have much more oil to sell. Mr. Bahree estimates that the Saudis and the United Arab Emirates can only increase by 1.8 million barrels a day, less than some forecasts of how much Russia’s output may decline.