The group, known as OPEC Plus, is at what could be an important crossroads. It has largely completed — at least on paper — its program to reverse the deep cuts in oil production made during the pandemic, bringing the overall production target to about 44 million barrels per day, roughly prepandemic levels.
One of the problems OPEC Plus faces is the fact that its production quotas for several member states are too ambitious, causing the amount of oil produced each month to fall far short of the group’s targets. For example, the International Energy Agency estimates that the group only uses about half of the increase set for July and August.
Saudi Arabia, the de facto leader of OPEC, and other members may consider: whether they should continue to work closely with Russia, an OPEC Plus co-leader whose oil supplies have been the focus of Western sanctions over the invasion of Ukraine. Members of OPEC, which claim to be neutral on political issues, are clearly aware of Russia’s dwindling crude output.
And the Saudis have recently signaled a possible thaw in relations with the United States, the world’s largest oil producer. Washington has pressured Saudi Arabia to increase inventories in a bid to lower prices at the pump for heavily pressured drivers in the United States and other countries.
Those calls went unheeded until OPEC Plus’ last meeting, when the group said it would increase production by 648,000 barrels per day, about 50 percent more than it had pledged in previous months, a move largely seen as a gesture of goodwill to the Biden administration. Later that day, government officials said President Biden would visit Saudi Arabia, a trip now slated for mid-July.
OPEC Plus avoided difficult decisions on Thursday. The group released a brief press release, citing members’ “consensus” on the outlook for the turbulent oil market that many analysts say is one of the most difficult to predict because of the war in Ukraine.
Thursday’s meeting produced little reaction from the oil market. Brent oil fell nearly 1 percent to about $115 a barrel during early afternoon trading in Europe. Brent, the international benchmark, is up about 50 percent this year as sanctions against Russia have fueled fears of a supply shortage in an already tight market.
It makes sense to argue that Moscow’s leadership role in OPEC Plus should be reduced. Under Western sanctions tightening, Russia is likely to become weaker as an energy power and have less room to maneuver to increase or decrease production to manage oil markets.
“That whole OPEC Plus system won’t work if Russian production isn’t rising, it’s falling,” Daniel Yergin, an energy historian, said in an interview in May.
So far, however, the Saudis and the Emirates seem inclined to shake off such arguments. The Saudis have spent years trying to bolster OPEC’s waning influence by involving Russia and other energy players, such as Kazakhstan.
And the most signs are that the Saudis are now reluctant to dump Moscow. Russia may have gained pariah status in Western eyes because of the war in Ukraine, but from a Saudi perspective it remains one of the two largest oil exporters, with Saudi Arabia.
In that vein, Russia is a more valuable partner than OPEC members such as Iran, Libya, Nigeria or Venezuela. Those countries’ oil industries are also hampered by sanctions or other problems.
Also, Russia’s success in finding markets for its oil in countries like China and India has shown it still has influence and has confused forecasters who predicted the country’s output would decline faster than it has hitherto. been.
“The big question for the future is whether Russia will continue to act as a co-pilot with the Saudis. The answer is most likely yes,” Ibrahim AlMuhanna, a former adviser to Saudi energy ministers, wrote in “Oil Leaders,” his recently published book on Saudi Arabia and OPEC.
In the past six years, “good results” have come from cooperation with Russia, Mr AlMuhanna said in an interview. “That’s why it will most likely continue in the future.”
Still, the Saudis will likely have something to offer Mr. Biden when he comes to visit. If the Saudis look recalcitrant, they risk unwanted US actions.
Washington has shown a lot of willingness to intervene in the oil markets. Sanctions against Iran, for example, prevent the sale of substantial amounts of oil that Tehran could produce or already has in storage.
At the Group of 7 meeting this week, the Biden administration proposed cutting the price of Russian oil. The goal of the plan, which has yet to be worked out, would be to deprive President Vladimir V. Putin of money for his war and lower prices for consumers.
OPEC officials have not publicly commented on the proposal, but they would likely view the idea of a price cap as a new source of uncertainty that could further complicate the task of managing the already volatile energy markets.
Analysts say that while the Saudis agree to increase production in the coming months, they are likely to proceed with caution. They are juggling their desire to satisfy Washington with other considerations, including keeping other producers, including Russia, on board until 2023. One option could be to increase Saudi production to make up for shortages from producers like Angola and Nigeria. although even that could prove a hard sell in OPEC.
The White House could be looking for more oil where there isn’t much to be found. There are varying estimates on how much additional oil OPEC Plus could produce, but some analysts say only Saudi Arabia has oil to add and even the kingdom could be approaching sustainable production limits.
If traders decide the bottom of the barrel has been reached, panic could ensue, analysts say. That could happen if the Saudis and others make big promises and then fail to deliver.
“If you just offer gradual increases, you still have a veil of mystery,” said Richard Bronze, chief of geopolitics at Energy Aspects, a research firm.
