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OPEC and its allies remain in firm control of the oil market, key members Saudi Arabia and the UAE said March 29, as the group prepares to meet to decide on May production levels amid an outcry from crude importing countries over tight supplies and rising fuel prices.
Market balances have been thrown into flux by the Ukraine war, as sanctions on Russia’s financial sector have led to widespread shunning of Urals and other Russian crude grades. Furthermore supply from non-OPEC’s second biggest producer Kazakhstan has been affected by storm damage at the Novorossiisk terminal, its key export route.
Even so, ahead of the meeting March 31, OPEC+ officials have strongly signaled that the coalition is not prepared to go beyond the steady monthly increases that have been implemented since August.
The monthly production quota rises have been 400,000 b/d but are set to go up slightly with upward revisions of baseline production levels for Saudi Arabia, Russia, Iraq, the UAE and Kuwait set to go into effect from May. Quotas are determined from the baseline levels and have yet to be finalized, OPEC+ officials have said.
Russian deputy prime minister Alexander Novak said March 23 that it was too early to talk about an adjustment to Russia’s quota under the agreement, as Russia continues to supply the market.
This is despite urgent calls from energy consumers for producers to release more oil onto the market. IEA executive director Fatih Birol said the market was “really disappointed” by the alliance’s lack of urgency to ease the market tightness and that OPEC+ countries were underproducing their production targets. The global market is facing an estimated 2.5 million b/d supply shortfall as a result of the war, the IEA has estimated.
OPEC+ countries have contributed to the market tightness, with several members underproducing their quotas. Collectively, the group fell 1.053 million b/d short of its targets in February, according to analysis prepared for ministers ahead of their meeting and seen by S&P Global Commodity Insights.
A delegate-level advisory committee will meet March 30 to assess market conditions and member quota compliance.
Non-OPEC’s second largest producer Kazakhstan expects a significant drop in production in April following storm damage to loading facilities at the port of Novorossiisk. The Kazakh energy ministry said March 29 that the incident could take 320,000 b/d of Kazakh production off the market in April, while maintenance work is carried out. It expects to compensate for lost volumes under the agreement by the end of June 2022. Kazakhstan produced 1.65 million b/d in February.
