With the price of a barrel of oil soaring, the group of oil producers known as OPEC Plus declined to take steps to cool the market at its monthly meeting on Wednesday.
In a statement that had surreal qualities given the surging prices in recent weeks, the group, which includes Russia, said current fundamentals and the outlook for the future pointed “to a well-balanced market.”
It blamed “volatility” on “geopolitical developments” — in other words, Russia’s onslaught in Ukraine.
Some analysts were not impressed. “Such an argument will increasingly strain credulity,” Helima Croft, an analyst at RBC Capital Markets, an investment bank, wrote in a note to clients.
Left unmentioned in the statement was the fact that Russia’s deputy prime minister, Alexander Novak, is a co-chair of OPEC Plus.
The cartel said it would continue a strategy agreed to in July, rubber-stamping a modest 400,000-barrel-a-day production increase for April. An increase of this size is widely considered by analysts insufficient to cool down prices. In addition, many of the member countries of OPEC Plus have been producing oil in quantities substantially below the group’s targets.
After the meeting, which was held by teleconference, prices surged again. Brent crude nearly reached $114 a barrel, the highest since 2014. West Texas Intermediate hit $112.50 a barrel, a 10-year high.
What OPEC Plus members will actually deliver to the market in the coming weeks is anyone’s guess.
Russia produces about one in 10 of the world’s barrels. But analysts say Russian crude is struggling to find buyers despite steep discounts approaching 20 percent as buyers and shippers, worried about getting ensnared in Western sanctions against Moscow, look for oil elsewhere. About 70 percent of Russian traded crude is being affected, according to Energy Aspects, a research firm.
“Most European majors are not touching Russian oil, and only a few European refiners and trading firms are still in the market,” the firm said in a note to clients. Freight rates and insurance premiums for dealing with Russian oil also have soared.
Even before Russia’s invasion of Ukraine, OPEC Plus was producing substantially less than its targets. The International Energy Agency, a Paris-based group that works to shape energy policy around the world, estimated that OPEC Plus fell short by about 900,000 barrels a day in January — about 1 percent of overall production.
Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, is likely to have some concern about what is becoming a disorderly rise in oil prices. Apparently matters have not reached a point where the Saudis and allies like the United Arab Emirates might act unilaterally and put more than their agreed share of oil on the market.
In addition, the Saudis, analysts say, may also be content to let geopolitics take the heat for the oil price spike and keep the cash rolling.
With Mr. Novak serving as a co-chair of OPEC Plus, discussions of the details of output increases may be at best awkward. OPEC Plus did not hold a news conference after the Wednesday meeting, perhaps to avoid uncomfortable questions that would have been directed at Mr. Novak.
Saudi Arabia’s relationship with Russia has long been contentious, but the collapse of oil prices in 2014, partly because of rapid increases in output in the United States, a rival to both, pushed the two petroleum powers to cooperate to manage output.
Understand Rising Gas Prices in the U.S.
A steady rise. American consumers have seen the cost of gasoline, along with many other goods and services, surge sharply in recent weeks. Last month, gas prices hit their highest level since 2014, and the national average for a gallon of gas is now $3.41, according to AAA.
Moscow is not a member of OPEC, but it was drawn into an alliance with the Saudi-led cartel — OPEC Plus — in 2016. The two fell out briefly in 2020 at the beginning of the pandemic, setting off a price war, but quickly patched matters up. Riyadh and Moscow to a great extent call the shots in OPEC Plus, to the resentment of some other members.
Despite the climbing oil prices, the U.S. oil industry remains reluctant to increase production significantly.
Executives of several companies, including Pioneer Natural Resources, Devon Energy and Continental Resources, have said in recent days that they were committed to limiting production to avoid oversupplying the market and pushing down prices to unprofitable levels. Many companies adopted this strategy after oil prices plunged in the early days of the coronavirus pandemic.
Vicki Hollub, Occidental’s chief executive, told analysts Friday that there was “no need and no intent to invest in production growth.”
And mechanisms for halting the rise in prices look to be in short supply. The announcement on Tuesday by the International Energy Agency of a 60-million-barrel emergency release of oil held in reserves caused a jump in prices, rather than the intended cooling of the market.
“We do not view this as sufficient relief,” analysts from Goldman Sachs wrote in a note to clients on Tuesday. They said reduced consumption of oil because of the high prices — or “demand destruction” — “is now likely the only sufficient rebalancing mechanism.”
In other words, further price increases are needed to bring the world’s thirst for oil back in line with the supply available.
Clifford Krauss contributed reporting.
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