OPEC + agrees to increase production despite rising oil prices

Worker in an oil field developed by Almetyevneft, Tatneft’s Oil and Gas Production Board (NGDU).

Egor Aleev | TASS | Getty Images

An influential energy alliance, known as OPEC +, will meet on Wednesday to determine the next phase of production policy.

This comes as crude prices rise to multi-year highs due to fears of supply disruptions and Russia’s escalating war with Ukraine.

OPEC and non-OPEC partners are due to meet at 12:30 London time. Energy analysts generally expect the producer alliance to stick to its plan to increase its quota for crude oil production by 400,000 barrels per day in April.

Ahead of the meeting, the International Energy Agency said it would continue with a global release of 60 million barrels to compensate for energy market disruptions caused by international sanctions against Russia over its war with Ukraine. The United States has said 30 million of that amount will come from the US Strategic Oil Reserve.

The release of oil from the United States and other IEA members reflects the magnitude of expected disruptions in global energy markets.

Brent oil futures traded at $ 109.18 a barrel on Wednesday morning, up about 4%. Brent rose to $ 113.02 a barrel earlier in the session, its highest level since June 2014.

Meanwhile, US futures in West Texas amounted to $ 107.44 per barrel, approximately 3.8% higher. The oil contract jumped to $ 110.67 earlier, its highest level since August 2013.

John Kildaff, a partner at Again Capital, described Russia’s war with Ukraine as “a dramatic moment for the market and the world, and supplies.” As a result, he called on the de facto leader of OPEC, Saudi Arabia, to use his spare capacity to help the world market, stand up to his non-OPEC partner, Russia, and support Ukraine.

“It’s time for Saudi Arabia to step up and be a friend who always claims to be for the United States and, frankly, their other customer base, especially in Asia,” Kildaff told CNBC’s Closing Bell on Tuesday.

“The Saudis have the power to silence some of this call, which we see for sure. They could easily put another 1 million to 2 million barrels of oil a day on the market with almost a push of a switch,” he said.

“I think they need to talk about doing and acting and being more pro-Western and pro-Ukraine on this issue, not with their business partner from Russia.”

OPEC alone accounts for about 40% of world oil supplies.

Biden: Putin has no idea what’s coming

Sanctions imposed on Russia over its invasion of Ukraine have so far been carefully designed to avoid a direct impact on the country’s exports, although there are signs that the measures inadvertently encourage banks and traders to avoid Russian crude oil.

Should Western leaders impose sanctions on Russia’s energy exports, a move the White House says is “certainly on the table”, it would have far-reaching consequences for the global economy.

Russia is one of the world’s largest oil producers and the world’s second-largest natural gas producer.

US President Joe Biden warned Russian President Vladimir Putin in a speech on the state of the union on Tuesday that “there is no idea what lies ahead” shortly after a wave of Western oil companies announced plans to suspend Russian operations.

Oil pump jacks are depicted at the Kern River oil field in Bakersfield, California.

Jonathan Alcorn Reuters

Alex Booth, head of research at Kpler, said the problem for OPEC + is that Saudi Arabia and the United Arab Emirates are currently the only ones with free capacity to increase production.

“The danger is that if it’s within OPEC +, they’re showing their hand that they can’t actually do it at all. If Saudi Arabia and the UAE are going alone, then they are really fighting against the rest of the organization and then against Russia as well. So they are in a very difficult situation in the group, “Booth told CNBC Street Signs Europe on Wednesday.

Of course, there will be a lot of pressure from outside, but I think their answer is “okay, US, nothing is stopping you from producing too, why don’t you talk about what you can do in the domestic market to increase oil supplies” what we do. “

Analysts at the political risk consulting firm Eurasia Group said there were two factors for the Gulf countries, most of which are part of the OPEC + alliance: oil and geopolitics.

“Saudi Arabia and the UAE are unlikely to pursue political positions on the Russia-Ukraine conflict, which will eventually lead to a major rift in the oil market governance framework, which is key to long-term revenue stability,” they said. .

Doubts whether OPEC + can achieve

The Alliance of Producers is in the process of eliminating record supply cuts of approximately 10 million barrels per day. The historic downturn was introduced in April 2020 to help the energy market recover after the coronavirus pandemic reduced demand for crude oil.

Last month, OPEC + quickly decided to give the green light for the return of 400,000 barrels per day for March.

The group faces continued pressure from leading consumers such as the United States and India to pump more to lower prices and help economic recovery. However, the group opposed calls for a faster increase, despite rising oil prices.

Louise Dixon, a senior analyst at Rystad Energy’s oil market, said a significant SPR announcement from the United States and other importing countries on Tuesday was unlikely to affect OPEC +’s decision to increase its quota ceiling by 400,000 barrels a day in April.

However, the promise of OPEC + to increase supplies is currently a promise on paper, as our supply database shows that OPEC + members involved in the deal actually produce about 800,000 barrels per day below the stated target levels, which contributes for supply market shortages and further fueling the rising price environment, “Dixon said.

Stephen Branock, a senior analyst at London-based PVM Oil Associates, also said expectations were that OPEC + would likely “seal” an agreement to add another 400,000 barrels a day in April.

However, “doubts will be pervasive about whether he will be able to deliver on such a promise, given his recent experience in failing to meet its production targets,” he added.