OPEC and its Russia-led partners May 5 approved another modest 432,000 b/d increase in production quotas for June, continuing to look past the impacts of the war in Ukraine on the market as they benefit from a windfall in oil revenues.
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Even with an expected European ban on Russian oil supplies set to squeeze global supplies further, the 23-country OPEC+ alliance insisted that current supply-demand indicators "pointed to a balanced market," according to a statement after the group met for just 13 minutes to reaffirm its plan for monthly measured quota hikes.
Delegates told S&P Global Commodity Insights they were closely monitoring Russian oil flows but remain satisfied with ship tracking data observing that its exports are still largely holding up, if significantly shifted from Europe to Asia. Analysis by S&P Global shows that April crude exports were at pre-invasion levels, after a dip in March.
The EU's proposed ban has yet to be finalized, and the willpower to fully enforce it at a time of high prices remains to be seen, although analysts widely expect that some 3 million b/d of Russian production could be shut in over the next few months.
Unclear visibility on the extent of China's demand losses because of tightened coronavirus lockdown restrictions is also a concern, delegates said in explaining why the group saw no reason to change course.
The alliance will meet next June 2 to decide on July quotas.
"We can not control geopolitics," Equatorial Guinea hydrocarbons minister Gabriel Obiang Lima told reporters May 4. "OPEC has been very consistent in what we've been doing. We do not control the geopolitics. We can control the amounts we have agreed to produce."
But the 432,000 b/d increase is unlikely to be fulfilled, with most members of the alliance already unable to raise output because of a lack of investment or internal disruptions.
Only Saudi Arabia and the UAE, who are keen to keep Russia within the OPEC+ fold despite global opprobrium over its invasion of Ukraine, hold any significant spare production capacity, which most analysts say is insufficient to fully account for expected Russian output declines.
S&P Global forecasts that by July, OPEC+ spare capacity will be down to 1.6 million b/d.
Already, Russian production in April was down as much as 1 million b/d from March, according to preliminary S&P Global estimates.
The looming squeeze has pushed crude prices well above $100/b, with Dated Brent assessed at $109.92/b on May 4—up 12% in the past 10 days.
As consuming countries feel the strain of rising fuel costs, oil producers have benefited.
The International Monetary Fund in April estimated that GCC economies would grow by a faster than expected 6.4% in 2022 after a 2.7% expansion in 2021, resulting in hundreds of billions of dollars collectively to help them rebuild their fiscal buffers depleted during the worst of the pandemic.
That has not escaped the notice of lawmakers in the US, with a key Senate panel set to approve the latest draft of NOPEC legislation that would allow lawsuits to be filed against the producer bloc for collusion and antitrust violations.
The bill's prospects in the full Senate and with the Biden administration are unclear, although record US diesel prices and a nadir in relations with Gulf countries may give it a momentum that previous years' versions have lacked.
The US is also leading an International Energy Agency-coordinated release of 240 million barrels from strategic oil stocks, which will be hitting the market over the next five months.
OPEC+ officials have long shrugged off the threat of NOPEC legislation and say their market management efforts are squarely rooted in supply-demand fundamentals.
Analysis by the OPEC secretariat prepared for the group's meeting and seen by S&P Global indicates that slowing demand growth and the IEA SPR releases by several consuming nations will lead to a healthy 1.9 million b/d supply surplus for the year.
The analysis assumes the OPEC+ alliance will continue raising its quotas by 432,000 b/d each month until October, as planned, but does not model in any member production shortfalls nor widening loss of Russian output from sanctions, which could quickly eat up that surplus.
Unit: million b/d