As oil prices rise above $130 a barrel, some members of an alliance of crude producers called OPEC+ say the rally is currently driven by panic, not a mismatch between supply and demand in the market.
Oil prices hit a multi-year high on Monday on concerns about supply disruptions following Russia’s invasion of Ukraine. The threat of a possible ban on oil imports from Russia, one of the world’s top oil and gas exporters, is fueling the rise.
But the Saudi Arabia-led Organization of the Petroleum Exporting Countries and its Russian-led allies, collectively called OPEC+, are on schedule for now, according to some of its members.
They say that although prices have risen due to supply issues, there has been no significant Russian disruption so far. “As far as OPEC is concerned, there is a balance between demand and supply,” said a delegate on Monday.
The price surge is currently driven by panic and not by supply and demand fundamentals, which means that any additional supply would not change much, some members noted. It could also have the opposite effect, with prices rising further on concerns about a shrinking buffer of spare capacity, as seen in the past week, they said. Oil prices rose despite a group of oil-consuming countries releasing 60 million barrels of oil from their emergency stocks.
“If OPEC were to meet tomorrow and decide to pump more, we’d have those who would say that means OPEC has even less spare capacity,” a senior Persian Gulf OPEC official said. “It’s damned if you do and damned if you don’t.”
Other delegates said no action was on the table at this stage, as OPEC+ still expects an oil surplus this year.
The cartel, however, could still change course if the Russian oil disruptions drive oil prices to unbearable levels for consumers. Russia is already struggling to sell its oil as many shippers, banks and traders are holding back on new deliveries.
“If prices rise to a level that would lead to demand destruction, then the situation is different,” a Saudi official said. Still, “none of the key OPEC+ players are willing to act unilaterally otherwise,” he said.
Some members are concerned that higher prices could potentially hurt demand in some key markets already struggling with high inflation.
“Brent at over $130 a barrel now is a challenge to the global economy and the future of oil,” Kuwait’s top OPEC official Mohammed al-Shatti said in a tweet on Monday.
OPEC+ said last week that it had decided to increase its collective production by an additional 400,000 barrels per day in April. The increase is in line with what the alliance agreed to last year as part of a plan to boost production to pre-pandemic levels. The projected small increase comes despite the United States pleading for months with OPEC to open its taps more widely to rein in rapidly rising U.S. gasoline prices that have become a political liability. .
OPEC members have so far benefited from coordinating oil production with Russia and its allies, with prices recovering after a sharp drop following the Covid-19 pandemic. But many of them now fear that a move to replace Russian oil could lead to a collapse of their alliance, OPEC delegates have said. Riyadh and Moscow waged a price war at the start of the pandemic in 2020 before striking a pact to cut production.
Some OPEC delegates have said Russia is unlikely to approve any additional supplies because it benefits politically from higher oil prices, which could deter the United States from imposing sanctions that would hit Moscow’s energy sector. . Secretary of State Antony Blinken said on Sunday that US and European partners were discussing a ban on Russian oil imports.
OPEC officials also say they are worried about the possible return of more than a million barrels a day of Iranian oil to markets as nuclear talks with world powers progress to lift sanctions on Tehran.
Prices have risen sharply in recent months, in part because several OPEC+ members were unable to meet their share of production as global demand picked up.