CERAWEEK: OPEC to 'stay the course' despite Russian invasion of Ukraine: Barkindo

OPEC plans to "stay the course" on its oil production schedule and not further hike volumes in reaction to the "global gamechanger" of Russia's war in Ukraine, OPEC Secretary General Mohammed Barkindo said March 7.

Arguing that potential oil supply shortages are political in nature and that diplomacy can still win out, the world simply does not have enough production capacity to make up for any major loss of Russia's 7 million b/d of crude oil and products exports, Barkindo said at the CERAWeek by S&P Global conference in Houston.

"We have no control over current events as geopolitics have overtaken the market," Barkindo said. "All we can do is stay the course of our decisions."

Since Russia invaded Ukraine on Feb. 24, calls have escalated for the US and EU to ban imports of Russian oil and natural gas. Crude prices, already well up since western countries imposed a raft of sanctions on Russia's financial sector that have effectively blocked large portions of the country's oil trade, surged further March 7 with news that the US was consulting with European countries on a possible outright ban on imports of Russian oil. An apparent stalling of the Iran nuclear deal talks also contributed to the rise.

The Platts Dated Brent benchmark rose to $130.05/b on March 7, its highest since July 2008, according to S&P Global Commodity Insights. However, European leaders pushed back later on March 7 on the notion of outright bans, bringing oil prices back down a bit, but still at seven-year highs.

Citing the historic nature of the 2016 OPEC+ alliance with Russia and other nations, Barkindo said the goal is to stay united and find peaceful solutions. He asked that political leaders not make emotional or irrational decisions on banning Russian oil and gas. He repeatedly asked that global oil and energy stability be insulated from geopolitical disputes.

"We have to remain focused; we have to remain calm," Barkindo said. "We cannot afford to lose our sense of balance. Just as we survived COVID, I am confident we will overcome this global challenge."

Barkindo added that he remains confident in world leaders to work toward peace.

"It may take time," he said. "We hope not."

The OPEC+ coalition has largely stood by its alliance with Russia through the war with Ukraine, sticking with its plans for measured monthly output increases of 400,000 b/d. The next OPEC ministerial meeting is March 31. No emergency meetings are planned.

Basic math

Barkindo focused his comments on the lack of excess global oil capacity and OPEC's 2022 forecast for 4.2 million b/d of worldwide oil demand growth.

"The world simply does not have the capacity" to replace Russia's supplies, he said.

Asked whether the war and high prices trigger demand destruction, Barkindo replied, "The jury is still out. We do not know at this point."

Already, there was a relatively negligible pricing impact when the International Energy Agency announced plans to coordinate a record 61.7 million barrel release from strategic stockpiles, including about 30 million barrels from the US Strategic Petroleum Reserve.

OPEC+ controls roughly 50% of global crude production. But, even if it were to act, OPEC's spare production capacity is relatively limited.

S&P Global Commodity Insights estimates that by May, Saudi Arabia will hold just under 1 million b/d of additional production upside, while the UAE will hold about 755,000 b/d. Every other OPEC member will be effectively maxed out.

Several OPEC members are having trouble even maintaining their current capacity. Libya's 300,000 b/d Sharara Field has been partially disrupted by civil unrest and the country as a whole remains unstable with significant risks to its output.

Iraq has also seen its share of outages caused by citizen protests, and on Feb. 21 put its 400,000 b/d West Qurna 2 oil field -- in which Russia's Lukoil holds a 75% stake -- on a monthlong maintenance.

In addition to Iran talks, the US has even restarted negotiations with Venezuela to potentially lift oil sanctions, although it is early and no deal appears imminent.

Barkindo said OPEC is not focusing on market share or fighting with the US shale sector. "It's about surviving this crisis," he said.

OPEC leaders are keenly aware of the emerging humanitarian crisis in Ukraine, Barkindo added.

"We are human," he said. "Nobody wants to see this."