Officials from OPEC countries and their allies agreed Wednesday to continue feeding a modest amount of additional oil into an increasingly tight market, a move that may add new uncertainty to energy markets.
Oil prices rose after the meeting, settling near $90 a barrel for Brent crude, the international standard. Prices have risen about 14% this year alone, adding to inflation and raising living costs for consumers around the world, including in the United States.
OPEC and its allies, known as OPEC Plus, have kept tight control of production over the course of the pandemic as demand has slowly grown. But there are new questions looming — including the possibility that Russia will invade Ukraine, and the chance of a new nuclear deal with Iran that would allow it to start selling its oil on the market.
Analysts at Goldman Sachs warned in a note after the meeting that “the combination of rising geopolitical tensions (Ukraine and Iran) and prices approaching politically sensitive levels are likely to increase volatility.”
Normally, such conditions could prompt expectations that OPEC Plus would seek a substantial increase in output.
The oil ministers, though, decided to stick with a plan, set in July, to increase production next month by a relatively modest 400,000 barrels a day.
But OPEC Plus has consistently fallen short of its targets in recent months, and so analysts say that the result is likely to be an addition of around 250,000 barrels a day, or about 0.25% of global demand.
At this point, Saudi Arabia, still the key decision-maker in OPEC Plus, appears to see no reason to depart from this cautious plan. The Saudis are content to see rising oil revenues replenish their own coffers, and they can argue that geopolitical tensions may be distorting the market.
“While attention is focused on other topics and they are able to say at least some of this increase in prices is driven by geopolitical tensions, then they can avoid having difficult discussions,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm, referring to Saudi Arabia.
The Saudis may also worry that Iran, a potential source of significant additional supplies, may start putting more oil on the market later this year. Oil analysts are growing optimistic that a deal could be reached in the coming months between Iran and Washington over Iran’s nuclear program, leading to some lifting of the sanctions that are crimping the Islamic Republic’s oil sales.
What it will take for Saudi Arabia to loosen up is the subject of much speculation. Stronger arm-twisting by the Biden administration may be required, some analysts say. The de facto leader of OPEC may change its calculations if “conventional war breaks out on European soil and crude prices soar past the $100-a-barrel mark,” wrote Helima Croft, an analyst at RBC Capital Markets, an investment bank.
Analysts say that markets may well heat up further in the coming weeks, especially if conflict over Ukraine threatens to disrupt energy flows. Inventories of oil are well below their long-run averages, creating the risk of price spikes. Any disruption involving Russia, a major oil exporter, would send shudders through the markets.
