Opec + oil producing countries have agreed on a modest further increase in their black gold production, as concerns about demand stemming from China’s anti-Covid restrictions intensify. The representatives of the thirteen member countries of the Organization and their ten partners (OPEC +), including Russia, agreed “to adjust upward the total monthly production of 432,000 barrels per day for the month of June”announced the alliance in a statement after the monthly meeting.
As in previous months, the cartel is sticking to its strategy of very gradual production increases that began in the spring of 2021, when the economy was recovering from the drastic cuts in crude imposed by the pandemic shock.
Despite the pressure, the Russian invasion of Ukraine, which caused prices to soar, hasn’t shaken members of the alliance, who refuse to pick up the pace to try to calm the market. Although prices rose again this week after the announcement of a proposed European embargo on Russian oil (both reference barrels, WTI and Brent, advanced by 5%), the level of production remains high.
OPEC + has so far resisted appeals from all sides, a caution now reinforced by the situation in China. The country, which has been largely intact for the past two years, is facing its worst wave in recent weeks, which is undermining its zero Covid strategy. Beijing closed dozens of subway stations on Wednesday and residents now fear lockdown, as in Shanghai, China’s largest city with 25 million people where the majority of cases occur.
According to most analysts, the slowdown in China is certainly a factor justifying a status quo of Opep +, despite international pressure to increase supply in the face of the current energy crisis.
Fears of a global economic slowdown caused by the war in Ukraine also weigh: at the end of April, the IMF slashed its global growth forecast for 2022 due to the “seismic waves” caused by the conflict, in particular the galloping inflation that undermines the purchasing power of consumers. In this feverish climate, OPEC + has revised down its forecasts on global oil demand.
As for the new economic sanctions planned against Russia, these changes should not reshuffle the cards for the moment. In its sixth package of sanctions, the European Commission recommends “a ban on all Russian oil, crude and refined, transported by sea and pipeline” by the end of 2022, as announced by its president Ursula von der Leyen in the European Parliament. . A prospect that threatens supply in an already tense market.
Glad to announce a further €200 million in EU humanitarian aid for Ukraine at the Donors’ Conference.
With this new pledge we tell the people of Ukraine: your fight is our fight. We are with you.
— Ursula von der Leyen (@vonderleyen) May 5, 2022
While unanimity among the 27 is imperative, Hungary, which is heavily reliant on Russian supplies, has rejected the project “in its current form”. However, the most accredited thesis argues that if the EU could persuade its members to ratify the plan it would have a huge impact on Russian oil exports.
According to other analysts, the wait-and-see attitude of OPEC + is becoming increasingly unsustainable and contrary to the mission of regulating the market of this alliance forged in 2016. Between a lack of investment in oil infrastructure in some member countries and operational problems, the cartel in fact regularly fails to meet its production quotas.