OPEC and Russia do nothing to calm oil markets

The energy crisis that is shaking the planet leaves the major oil-producing countries unmoved… For now. The thirteen member countries of OPEC and their ten allies led by Russia met by videoconference on Wednesday, for the first time since the invasion of Ukraine. They have decided to continue their strategy without change, ignoring the surge in crude prices which is worrying consumer countries.

“The current volatility is not due to changes in market fundamentals, but to geopolitical developments,” the group said in a brief statement.

A barrel of Brent was trading at $113 shortly after the top ended, up 8%. “The market is panicking,” commented Louise Dickson, an analyst at Rystad Energy in a note published shortly before the end of the meeting. The rise in prices triggered after the start of the conflict in Ukraine six days ago is only intensifying. »

No penalties

The 23 exporting countries, which together account for more than half of the world’s oil supply, will increase production by 400,000 barrels a day next month, as has been the case every month since last year. This is small compared to the potential disruption triggered by the war between Russia and Ukraine.

It is true that the energy sector is not, for the moment, directly concerned by Western sanctions. Russia can therefore, in theory, continue to export its oil. But some Western importers – refiners, transporters, etc. – are beginning to turn away from it.

A discount for Russian oil

A barrel of Russian oil is currently trading at a discount of more than 18 dollars against Brent. “This price differential clearly reflects a reluctance to take Russian crude,” said Shin Kim, analyst at S&P Global Commodity Insights. For buyers, “there is always a risk of additional sanctions that would directly or indirectly penalize the purchases or production of Russian oil. »

“Nothing is ruled out,” US President Joe Biden said of the matter on Wednesday. “Markets are increasingly pricing in a pullback in Russian supply, even though it’s not in either party’s interest to weaponize oil,” said Ehsan Khoman, an economist at MUFG bank.

Strategic reserves

Russia is the world’s third largest producer of crude, behind the United States and Saudi Arabia, and the second largest exporter, with some 4.5 million barrels a day sold abroad, half of which in Europe.

Faced with such large volumes, the use of strategic reserves from Western countries, announced on Tuesday, will have a “limited impact”, notes Ehsan Khoman.

Wait for hindsight

OPEC’s response is also constrained. “Saudi Arabia and the United Arab Emirates could increase their production by around a million barrels each, but it would take them one to two months to achieve this,” said Homayoun Falakshahi, an analyst at Kpler.

This possibility remains theoretical. The allies in no way signaled on Wednesday their intention to significantly increase their volumes. “OPEC rarely reacts urgently, they always prefer to wait in order to gain perspective on the impact of events, continues the same expert. And of course, the fact that Russia itself is part of the alliance skews the game, even if the allies try not to bring geopolitics into their decisions. »

An already tense situation

If prices are rising so much, it is because the situation was already tense before the Ukrainian crisis. Several OPEC countries are failing to extract as much as they would like, such as Nigeria and Angola. In total, the alliance’s production is below its objectives at 800,000 barrels daily, calculates Rystad.

Several years of reduced investment in the oil sector are starting to have an effect. “This state of affairs has little to do with the geopolitics of the moment, it only aggravates a serious supply problem,” concludes Ehsan Khoman.

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