OPEC and its allies once again ratified a small monthly increase in production, even as global markets look set to tighten because the European Union is considering banning supplies from Russia.
International consumers have called on Saudi Arabia and its partners to fill the gap left by a boycott of Russian crude and help ease the inflationary pain caused by prices near $110 a barrel.
But in yet another brief meeting, the Organization of Petroleum Exporting Countries and its allies rubber-stamped the standard 432,000 barrel-a-day increase for June, according to a statement from the group. That’s a volume analysts doubt they’ll even be able to deliver as most members struggle with capacity constraints.
Having rescued the world oil industry with massive production cuts in 2020, and shepherded the recovery last year by gradually returning barrels, OPEC+ is now seeing its relevance ebb as countries run into output limits. The cartel effectively failed to increase output at all last month, according to data compiled by Bloomberg.
“OPEC’s steady ramp in supply since mid-2021 seems to be running out of steam,” Bill Farren-Price, a director at Enverus Intelligence Research, said before Thursday’s meeting. “With supply risk on the rise as Russia sanctions gather momentum, the organization’s capacity to stabilize oil prices is evaporating.”
Russia’s invasion of Ukraine has added a further complication for the group. Doing anything beyond the scheduled monthly supply increase would require support from Moscow, which would be unlikely to help other producers replace its lost exports.
Changing policy without support from Moscow could shatter the 23-nation alliance. OPEC’s Gulf heavyweights, facing strained relations with their traditional allies in Washington, have shown support for Russia to remain in the coalition. The group will meet again on June 2.
Since Russia’s invasion of Ukraine in February, OPEC+ has held increasingly short meetings that have largely ignored the biggest factor driving oil prices. Despite a professed commitment to transparency, it hasn’t held any press conferences this year to explain its thinking.
A rationale was supplied by Kuwaiti oil minister Mohammed Alfares, who told state-run Kuwait News Agency that OPEC+’s decision was informed by the “increase in Covid-19 cases in China and measures taken there to stop the spread.” The prospect that rising U.S. interest rates could check economic growth also shaped their choice, he said.
Riyadh has signaled it sees no shortage yet stemming from the Russia crisis, as buyers in China and India snap up cargoes that western companies don’t want. The threat to fuel demand from the re-imposition of Covid-19 lockdowns in China has only solidified the kingdom’s sense of caution.
If that position were to change as the EU prohibition on Russian oil comes into effect over the next six months, any additional barrels would need to be from Saudi Arabia, the United Arab Emirates or Iraq. Other members such as Angola and Nigeria have consistently failed to boost output despite their rising quotas.
Disregarding international pressure isn’t without consequences for OPEC+.
The U.S. and other key consumers have already responded to the group’s intransigence by deploying emergency oil stockpiles, and as these measures struggle to tame fuel costs there are signs that Washington’s attitude is hardening.
With record prices at the pump, a decades-long effort to subject OPEC to U.S. antitrust laws is gathering pace. The Senate Judiciary Committee is expected to approve legislation, known as NOPEC, on Thursday. A vote by the committee would pave the way for full Senate consideration of the legislation, which would allow the U.S. to sue the cartel for manipulating energy markets.