OPEC 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 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.
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+.
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.”
OPEC has historically not commented on the actions of particular countries.
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.”
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.”
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.
The US 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.
OPEC maintains it can not control oil and gas prices and that it is set by the market and the oil producers.
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.
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.