As oil prices surge above $130 a barrel, some members of a crude-producers alliance called OPEC+ say the rally is currently being driven by panic—and not a demand-supply mismatch in the market.
Oil prices hit a multiyear high Monday on concerns about supply disruptions after Russia’s invasion of Ukraine. The threat of a potential ban on imports of oil from Russia, one of the world’s top oil and gas exporters, is fueling the rally higher.
But the Saudi-led Organization of the Petroleum Exporting Countries and its Russia-led allies, together called OPEC+, is staying pat for now on production plans, according to some of its members.
They say while prices have surged on supply concerns, there hasn’t been any significant Russian disruption so far. “As far as OPEC is concerned, there is a balance between demand and supply,” a delegate said Monday.
The surge in prices is currently being driven by panic and not demand-supply fundamentals, which means any additional supply wouldn’t change much, some members noted. It could also have the opposite effect, with prices rising further on concerns about a shrinking cushion of reserve capacity, as was seen last week, they said. Oil prices rose despite a group of oil-consuming nations releasing 60 million barrels of oil from their emergency stockpiles.
“If OPEC were to meet tomorrow and decide to pump more, we will have those who would say that means OPEC has even less spare capacity,” said a senior Persian Gulf OPEC official. “It is damned if you do and damned if you don’t situation.”
Other delegates said no action was on the table at this stage as OPEC+ still foresees an oil surplus this year.
The cartel, however, may still change tack if Russian oil disruptions bring oil prices to levels that are unbearable to consumers. Russia is already struggling to sell its oil as many shippers, banks and traders refrain from handing new deliveries.
“If prices rise to a level that would lead to demand destruction, then it is a different situation,” a Saudi official said. Yet, “none of the key players in OPEC+ is willing to act unilaterally otherwise,” he said.
Some members are worried that elevated prices might eventually hurt demand in some key markets already struggling with high inflation.
“Brent at Over $130 Bbl now—is a challenge for world economy and future of oil,” Kuwait’s top OPEC official, Mohammed al-Shatti, said in a tweet Monday.
OPEC+ said last week they decided to raise their collective production by another 400,000 barrels a day in April. That boost is in line with what the alliance agreed to last year as part of a plan to raise output to pre-pandemic levels. The small, planned increase comes despite the U.S.’s pleading for months with OPEC to open its taps wider to tame fast-rising U.S. gasoline prices that have become a political liability.
OPEC members have so far benefited from the coordination of oil production with Russia and allies, with prices recovering after a sharp fall following the Covid-19 pandemic. But many of them are now concerned that a move to replace Russia’s oil could lead to a breakdown of their alliance, OPEC delegates said. Riyadh and Moscow fought a price war during the early stages of the pandemic in 2020 before reaching a pact to reduce output.
Some OPEC delegates said Russia is unlikely to approve any additional supplies as it benefits politically from higher oil prices, which could deter the U.S. from imposing sanctions that would hit Moscow’s energy sector. Secretary of State Antony Blinken said Sunday that the U.S. and European partners are discussing a ban on imports of Russian oil.
OPEC officials say they are also worried about the possible return of more than one million barrels a day of Iranian oil supplies to markets amid progress in nuclear talks with global powers to lift sanctions on Tehran.
Prices rose sharply in recent months in part because several OPEC+ members have been unable to meet their share of production as global demand has picked up.
George is Digismak’s reported cum editor with 13 years of experience in Journalism