Officials from OPEC, Russia and other oil-producing countries decided on Thursday to confirm the decision taken last month to lift output by 648,000 barrels per day in August.
Now, the question is, what comes next?
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 output that were put in place in the pandemic, bringing the total production target to about 44 million barrels a day, roughly the prepandemic level.
Among the issues facing OPEC Plus: the fact that its output quotas for different member countries are overambitious, leaving the amount of oil produced each month well short of the group’s targets. For instance, the International Energy Agency estimates the group will achieve only half of the increase set for July and August.
Saudi Arabia, OPEC’s de facto leader, and other members may want to consider whether they should continue working closely with Russia, a co-leader of OPEC Plus whose oil supplies have been the focus of Western sanctions because of its invasion of Ukraine. Members of OPEC, which claims to be neutral on political issues, are clearly aware of Russia’s slipping crude output.
And the Saudis have lately signaled a possible thawing in relations with the United States, the world’s largest oil producer. Washington has been pressing Saudi Arabia to increase supplies in an effort to bring down prices at the pump for hard-pressed drivers in the United States and other countries.
Those appeals went unheeded until OPEC Plus’s last meeting, when the group said it would bolster output by 648,000 barrels a day, roughly 50 percent more than it had pledged in prior months, a move that was seen mainly as a gesture of good will to the Biden administration. Later that day, administration officials said President Biden would visit Saudi Arabia, a trip that is now planned for mid-July.
OPEC Plus avoided difficult decisions on Thursday. The group issued a terse news release, referring to the members’ “consensus” on the outlook for the turbulent oil market that many analysts say is among the most challenging in memory to forecast because of the war in Ukraine.
The meeting on Thursday produced little reaction from the oil market. Brent crude was down nearly 1 percent at about $115 a barrel in early-afternoon trading in Europe. Brent, the international benchmark, has surged around 50 percent this year as sanctions on Russia have stoked fears of supply shortages in an already taut market.
There is logic in arguing that Moscow’s leadership role in OPEC Plus should be downgraded. Under tightening Western sanctions, Russia will probably grow weaker as an energy power and have less maneuvering room to raise or lower production to manage the oil markets.
“That whole system of OPEC Plus doesn’t work if Russian production is going down not up,” Daniel Yergin, an energy historian, said in an interview in May.
So far, though, the Saudis and the Emiratis seem inclined to shrug off such arguments. The Saudis have spent years trying to strengthen the waning clout of the Organization of the Petroleum Exporting Countries by bringing Russia and other energy players, like Kazakhstan, into the fold.
And most signs are that the Saudis are reluctant to ditch Moscow now. Russia may have acquired near pariah status in Western eyes because of the war in Ukraine, but from a Saudi point of view, it remains one of the two largest oil exporters, with Saudi Arabia.
In that line of thinking, Russia is a more valuable partner than OPEC members such as Iran, Libya, Nigeria and Venezuela. The oil industries of those countries are also hamstrung by sanctions or other problems.
Also, Russia’s success in finding markets for its oil in countries like China and India has demonstrated that it still has leverage and has confounded forecasters who predicted that the country’s output would decline faster than it has so far.
“The big question for the future is whether Russia will continue to act as co-pilots with the Saudis. The answer is most likely yes,” Ibrahim AlMuhanna, a former longtime adviser to Saudi energy ministers, wrote in “Oil Leaders,” his recently published book about Saudi Arabia and OPEC.
In the last six years “good results” came from cooperation with Russia, Mr. AlMuhanna said in an interview. “Therefore, it will most likely continue in the future.”
The Russia-Ukraine War and the Global Economy
A far-reaching conflict. Russia’s invasion on Ukraine has had a ripple effect across the globe, adding to the stock market’s woes. The conflict has caused dizzying spikes in gas prices and product shortages, and has pushed Europe to reconsider its reliance on Russian energy sources.
Still, the Saudis will probably want to have something to offer Mr. Biden when he visits. If the Saudis look recalcitrant, they risk unwelcome American actions.
Washington has shown plenty of willingness to intervene in the oil markets. Sanctions on Iran, for instance, are preventing the sale of substantial quantities of oil that Tehran could produce or already has in storage.
At the Group of 7 meeting this week, the Biden administration proposed capping the price of Russian oil. The aim of the plan, which has yet to be fleshed out, would be to deny Russia’s president, Vladimir V. Putin, funds for his war and ease prices for consumers.
OPEC officials have not publicly commented on the proposal, but they would probably view the price cap idea as a new source of uncertainty that could further complicate the task of managing already volatile energy markets.
Analysts say that although the Saudis may agree to raise production in the coming months, they are likely to proceed cautiously. They are juggling their desire to placate Washington with other considerations, including keeping other producers, among them Russia, on board into 2023. One option may be to increase Saudi production to make up shortfalls from producers like Angola and Nigeria, though even that might prove a hard sell in OPEC.
The White House could be prospecting for more oil where there is not much to be found. There are various estimates about how much extra oil OPEC Plus could produce, but some analysts say that only Saudi Arabia has oil to add and that even the kingdom may be close to sustainable output limits.
If traders decide that the bottom of the barrel has been reached, panic might ensue, analysts say. That could happen if the Saudis and others make big promises and then prove unable to deliver.
“If you just offer gradual increases, then you still have a veil of mystery,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm.