The Organization of the Petroleum Exporting Countries is unable to control the supply of oil globally amid the ongoing and escalating aggression of Ukraine by Russia, said OPEC’s secretary general Mohammad Barkindo on Monday.
The members of OPEC are Saudi Arabia, Iran, Gabon, Algeria, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Angola, the United Arab Emirates, Venezuela and Equatorial Guinea.
Russia is not a member of OPEC, nor is the United States.
The silence from OPEC on any concrete plan it might have to alleviate consumer distress from gas prices that have risen as high as $7 in some parts of America continued this week.
The massive spike in energy prices globally is a “game changer,” but the goal of OPEC is to “continue to be a reliable and dependable supplier of oil to global markets,” he said at CERAWeek by S&P Global in Houston.
Here’s What OPEC Actually Does
OPEC and its allies, a group known as OPEC+, have chosen to keep production steady as oil prices reached $130 Sunday, the first time since 2008.
The Organization of the Petroleum Exporting Countries has 13 member states and in 2016 the group became allies with other top non-OPEC oil-exporting countries to create OPEC+.
OPEC was created in 1960 with an original five members of oil-producing states as a way to keep the oil market steady, while making sure petroleum supplies are reaching the market in efficient and affordable ways.
Since its creation, OPEC has been the biggest impactor of oil supplies and pricing, because its current 13 members control almost 82% of the world’s proven oil supplies.
That’s brought in an ongoing torrent of criticism from everyone from prime ministers to economists, who say OPEC is essentially a cartel the manipulates the oil markets and pricing despite ample, continuous production and supply.
Now, with gas prices headed to their highest levels in years, many market watchers are turning to the organization for guidance on when consumers can see some relief and how it will handle Russia’s invasion of Ukraine.
Thus far, however, the organization has hewed closely to the party line and says it has no control over the price of oil or how much is available.
The group has “no control over current events” and OPEC is not a political organization, said Barkindo.
“We need to depoliticize oil,” he said. “We are bound by principles of market stability.”
Why Doesn’t OPEC Usually Say Much?
OPEC has historically not commented on the actions of particular countries.
Although the group frequently reminds both the market and policymakers around the world that it is not a political organization — and thus not subject to the rigors of public transparency nor the need to maintain popularity with voters — it is comprised of nations that do have political pressure on them.
That means that for many market players, they have to craft their policies surrounding global resources, like oil, through nationalist optics. So while OPEC may not publicly be saying what its plan is for sky-high oil prices, it most likely has one at the ready.
OPEC itself says that it cannot speak for member countries, which include the most oil-rich nations in the world, about their decisions about supply and demand.
The decision of a country to be part of a group of OPEC and non-OPEC countries remains the “sovereign decision of those respective members,” Barkindo said.
“I am not in a position to talk on their behalf,” he said. “The world will continue to need these producing countries to work together and ensure stability and continue to invest to develop capability to meet this growing demand.”
The Market is Making Changes As it Can
So far, however, changes have been minimal.
OPEC began meeting monthly in 2021 instead of quarterly or half year meetings. The group met on March 2 and decided from its previous agreement to add output by 400,000 barrels per day in April.
Russia is part of OPEC+ and is the second largest exporter of oil. German chancellor Olaf Scholtz confirmed that Europe cannot sanction Russian energy.
A disruption of supply from Russia will impact the global markets and demand, Shin Kim, head of oil supply and production analytics, S&P Global Commodity Insights, told TheStreet.
“There are not sufficient sources of incremental supply to cover a substantial prolonged loss of Russian oil, particularly the four million barrels per day of Russian oil imports into Europe,” she said.
Last week, the U.S. and IEA announced a coordinated 60 million barrel strategic reserve release for April/May. While Saudi Arabia and UAE could potentially add 1.5-2 million barrels per day combined if they ramp up to full capacity, but “even these volumes likely cannot be sustained for an extended amount of time,” Kim said.
Another concerning factor is that Saudi Arabia has shown no indications of ramping up supply ahead of schedule and a potential Iran nuclear deal could add 1 million barrels per day by August.
“Overall, this amounts to 2 million barrels per day of potential sustainable incremental supply over the next three to six months,” she said.
What Can We Expect For Oil Prices Now?
The higher energy prices will also remain volatile for several months, Bud Weinstein, emeritus professor of applied economics at the University of North Texas, told TheStreet.
“Volatility in energy prices can be expected for an extended period, regardless of developments in the Russia/Ukraine conflict,” he said.
But there are potential easements in sight, experts said.
If the U.S. decides to ban the importation of Russian crude oil, which accounts for only about 6% of domestic consumption of 20 million barrels per day, that volume can be easily replaced from other sources, such as the Middle East or Venezuela, Weinstein said.
“Indeed, an American delegation is currently in Caracas discussing the partial lifting of sanctions to allow Venezuela to resume shipments of heavy crude to refineries along the Texas/Louisiana Gulf Coast,” he said.
Oil prices have risen exponentially due to an undersupplied global oil market, said Rob Thummel, senior portfolio manager at Tortoise in Overland Park, Kan.
“Increasing oil production is not as easy as turning on your water faucet and increasing the volume of water,” he said. “Adding oil production to global supply takes several months.
When Could OPEC Speak?
Barkindo declined to discuss any potential sanctions against Russia.
“We need producers within OPEC and outside of OPEC to be fully aligned,” he said. “We are determined to continue in this fashion.”