No OPEC plans for emergency meeting on potential US-EU ban on Russian oil: sources
OPEC appears in no hurry to come to the market’s rescue with more crude production, insistent that soaring oil prices are a geopolitical problem of the West’s own making.
Sources in the organization said no emergency meeting was being discussed, even with the threat of a Russian oil embargo by the US and European countries that could choke off some 3 million b/d of global crude supplies.
“The high prices are not an outcome of any OPEC country’s actions,” one source said. “It is a political situation.”
Another said while the producer bloc is concerned about the impact of the Ukraine conflict on the world economy and long-term oil demand, any output boost would likely be ineffective, citing the negligible price impact of the International Energy Agency’s recently announced plans to coordinate a record 61.7 million barrel release from strategic stockpiles.
“I think we should continue monitoring closely the situation, and hopefully we will see a reconfiguration in the Russian export flows while mostly keeping its current supply,” the delegate said.
Crude prices, already bid up since western countries imposed a raft of sanctions on Russia’s financial sector that have effectively blocked large portions of the country’s oil trade, have surged further on US Secretary of State Anthony Blinken’s March 6 comments that the US was consulting with European countries on a possible outright ban on imports of Russian oil.
Front-month Brent futures spiked to a 14-year high of $139.13/b in early London trading March 7, but have since eased back to $123.62/b as of 1312 GMT, still up 4.67% from the March 4 settlement.
An apparent stalling of the Iran nuclear deal talks has also contributed to the rise.
Russia, the world’s third largest crude producer, supplies Europe with roughly 2.7 million b/d of crude, while its crude exports to the US have averaged just over 200,000 b/d, though they have dropped in recent months as the Ukraine crisis has escalated.
Standing with Russia
OPEC and its partners, including Russia, have scheduled their next formal meeting for March 31, when they will decide on May output quotas.
The coalition has largely stood by its alliance with Russia through the war with Ukraine, sticking with its plans for measured monthly output increases of 400,000 b/d, despite pressure from western countries and major oil consumers to more aggressively hike production to tamp down prices. In a statement after its most recent meeting March 2, the group said it saw the market as largely balanced — an assessment that many analysts would dispute, given the restrictions on Russian trade.
The alliance controls some 50% of global crude production and OPEC has been keen to keep Russia in the fold, not only to help with managing the oil market, but also for economic, security and other strategic reasons.
Even were it to act, OPEC’s spare production capacity is relatively limited.
S&P Global Commodity Insights estimates that by May, Saudi Arabia will hold just under 1 million b/d of additional production upside, while the UAE will hold about 755,000 b/d. Every other OPEC member will be effectively maxed out.
Several OPEC members are having trouble even maintaining their current capacity.
Libya’s 300,000 b/d Sharara field has been partially disrupted by civil unrest and the country as a whole remains unstable with significant risks to its output.
Iraq has also seen its share of outages caused by citizen protests, and on Feb. 21 put its 400,000 b/d West Qurna 2 oil field — in which Russian company Lukoil holds a 75% stake — on a month-long maintenance.
Meanwhile, negotiations to revive the Iran nuclear deal appear to have hit a roadblock, with Russia on March 5 seeking a written guarantee from the US that its sanctions would not impede Russia’s trade with Tehran.
Negotiators on the nuclear deal had said they were extremely close to finalizing an agreement, which S&P Global estimates could unlock some 750,000 b/d of Iranian oil exports within three months, until Russia’s 11th hour request.
Both US and Iranian officials have said the Russian demands were counterproductive to a deal.
“Russia’s approach until today has been a constructive one for reaching a collective agreement,” Saeed Khatibzadeh, spokesperson for Iran’s foreign ministry, told a press briefing in Tehran on March 7.
The US and Venezuela also launched talks on March 6 that could lead to the easing of sanctions that have cratered Venezuelan oil production, though reports indicate that both sides are still far apart.
A Venezuelan official told S&P Global that the discussions were a positive start but that a concrete deal would likely take some time.