With analysts warning of a coming oil supply crunch, OPEC and its allies, including Russia, decided on Thursday to stick with their previously agreed plan of modest monthly increases. The group, known as OPEC Plus, said it would increase oil output in May by 432,000 barrels a day, a slight uptick from the usual increase of 400,000 barrels a day for technical reasons.
In a news release following what was probably a very brief meeting, OPEC Plus repeated its thinking of a month earlier. The group said that the outlook was for “a well-balanced market” and that recent volatility in prices was “not caused by fundamentals, but by ongoing geopolitical developments,” apparently meaning the war in Ukraine.
In contrast, many analysts are warning that with oil storage tanks at low levels, sanctions over the war in Ukraine and a kind of buyers’ strike underway against Russian oil, a major supply crunch could develop, lowering global economic growth and stoking inflation.
OPEC Plus’s announcement came just before the White House made public plans to release up to 180 million barrels of oil from emergency reserves in response to the rising oil prices and in anticipation of possible spikes in demand or drops in supply. White House officials said that they expected other countries to announce additional contributions at a meeting of the International Energy Agency on Friday.
After months of fruitlessly asking OPEC Plus to increase oil production to calm roiled markets, Washington seems to have decided to take charge.
“We know that consumers need relief now, and that is why the president has acted,” said a senior administration official.
Prince Abdulaziz bin Salman, Saudi Arabia’s oil minister, likes to describe OPEC as a kind of central banker of oil, smoothing market fluctuations by adding and subtracting supplies, although analysts dispute how effectively it has played this role. In current circumstances, though, OPEC Plus may not be able to act because Russia, while not an OPEC member, has been an integral part and co-chair of the larger group since it was formed in 2016.
Alexander Novak, Russia’s deputy prime minister, is said to have participated in Thursday’s teleconference. A decision to pump up oil output might have been seen as aiding the West in support of Ukraine and detrimental to Moscow’s interests.
OPEC, whose de facto leader is Saudi Arabia, seems to be trying to ignore the problem caused by Russia’s presence in the group. For instance, OPEC’s latest oil market report, published in mid-March, forecast that Russia’s oil production would be 11.8 million barrels a day in 2022, a nearly 1 million barrel a day increase over 2021 levels.
Not reducing those estimates because of the war and sanctions “partly reflects the political sensitivity of downgrading forecasts for Russia,” wrote analysts at Energy Aspects, a research firm.
Other analysts, including those at the International Energy Agency in Paris, are forecasting a substantial decline in the range of 3 million barrels a day as sanctions bite and companies like Shell and France’s TotalEnergies phase out purchases of Russian oil. In particular, concerns about supplies of diesel fuel, which Russia exports in large volumes to Europe, are emerging.
And OPEC Plus does not have much more oil to contribute to the world market. The group is already falling about 1.3 million barrels a day short of its targets, and is unlikely to come close to adding 432,000 barrels a day in May. Russia, for instance, along with Saudi Arabia, is marked down to increase by more than 100,000 barrels a day, to 10.5 million barrels a day; because of sanctions, Moscow is very unlikely to be able to increase output.
Analysts say that only Saudi Arabia and the United Arab Emirates have the ability to add substantial volumes of additional oil. These producers may be holding back until it becomes clearer how much Russian production will be lost. There are also doubts among market watchers about how much oil they could add quickly.
News that the Biden administration would release 1 million barrels a day from U.S. strategic reserves beginning in May, comparable to about 1 percent of global output, may also encourage these countries to save what additional volumes they have for a more opportune moment.
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March 31, 2022 at 10:46PM
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OPEC Plus to Move Ahead With Plans for Modest Increase of Oil Releases - The New York Times
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