Saudi Energy Minister Prince Abdulaziz bin Salman said OPEC+ will keep politics out of its decision-making process in favor of the “common good” of stabilizing energy prices.
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A group of some of the world’s most powerful oil producers will meet on Thursday to determine the next phase of production policy after reports the US is considering the largest draw from its emergency oil reserve.
OPEC and non-OPEC partners, an influential energy alliance called OPEC+, will hold talks via video conference starting around 12:30pm London time.
Energy analysts expect OPEC+ to stick to its strategy of gradually reopening oil taps despite continued pressure from top consumers who are urging the group to pump more to cool rising oil prices and support the economic recovery.
Oil prices have risen to near an all-time high on concerns over Russian supply disruptions after the US and international allies unleashed a barrage of economic measures on the Kremlin in the wake of its unprovoked attack in Ukraine.
Of course, Russia is the third largest oil producer in the world after the US and Saudi Arabia, and the world’s largest exporter of crude oil to global markets. It is also a major producer and exporter of natural gas.
Against this backdrop, the US is considering a plan to cool soaring crude prices by releasing up to 180 million barrels from the country’s strategic oil reserves, Reuters reported on Wednesday, citing four unnamed sources. President Joe Biden is expected to make comments later Thursday.
The move would be the third time the US has tapped into its SPR in six months and the second since Russia’s February 24 invasion of Ukraine.
Oil prices fell sharply on the news. International benchmark Brent crude futures traded 5.8% lower at $106.87 a barrel on Thursday morning in London, while US West Texas Intermediate futures were down 6% at $101.33.
supply shock
Edward Bell, senior director of market economics at Emirates NBD, said on Thursday he expects OPEC+ to stick to its existing policies.
“If you look at the structure of the futures curves, they tell you very clearly that this is not a well-supplied market and there’s going to be a significant supply shock for the rest of 2022,” Bell told CNBC’s Capital Connection. “
“However, I don’t think that’s really going to make OPEC+ try to ramp up their production scale faster,” Bell said, especially given the US is reportedly considering releasing up to 180 million barrels pull the SPR.
“What this could do is just the munitions that OPEC+ has to say, ‘Well look, there’s oil out there available, you can pull it from the reserves.’ We have seen similar messages from OPEC countries in the past when there have been requests for faster increases.”
OPEC Secretary General Mohammad Barkindo has encouraged OPEC+ ministers to “stay the course.”
Aaron M. Speaker | Bloomberg | Getty Images
OPEC Secretary-General Mohammad Barkindo on Wednesday encouraged members of the group, which includes Russia, to “stay the course” and “remain vigilant and alert to ever-changing market conditions.”
OPEC+ is in the process of unwinding record supply cuts of around 10 million barrels a day. The historic production cut was implemented in April 2020 to help the energy market recover after demand for crude oil skyrocketed from the coronavirus pandemic.
The producer alliance has raised production targets by 400,000 barrels a day every month since August of last year. That monthly target increase is set to increase to 432,000 barrels per day from May 1.
“Act of Desperation”
Saudi Energy Minister Prince Abdulaziz bin Salman said on Tuesday that OPEC+ will keep politics out of its decision-making in favor of the “common good” of stabilizing energy prices.
Separately, UAE Energy Minister Suhail Al Mazrouei told CNBC earlier this week that Russia will always be part of OPEC+, even as governments around the world shun the oil exporter over its war in Ukraine.
Tamas Varga, an analyst at PVM Oil Associates, said the prospect of a massive SPR release is one of two tools available to provide additional supply near-term. The other would be a return to the Iran nuclear deal.
“Right now it comes across as an understandable act of desperation [a] questionable result,” Varga said.
Last week, leaders of the major G-7 economies called on OPEC to increase oil production amid supply shortages.
“We call on oil and gas producing countries to act responsibly and increase supplies to international markets, noting that OPEC has a key role to play. We will work with them and all partners to ensure a stable and sustainable global energy supply,” the group said in a statement.
The G-7 group of major economies consists of the UK, US, Canada, Japan, Germany, France and Italy.