OPEC’s mission to defend oil prices this year is starting to look even harder.
The cartel and its allies launched new production cuts this month to stave off a global oil surplus, and group leader Saudi Arabia said the curbs may continue beyond the first quarter if necessary.
But the scale of the organization’s challenge is widening.
Rival supplies from the US and elsewhere are growing more strongly than expected, the International Energy Agency said last week. As a result, the Organization of Petroleum Exporting Countries and its partners may need to continue output restraints for the rest of the year.
OPEC+ also faces a problem with crude prices. Despite conflict in the Middle East and the barrage of Houthi attacks in the Red Sea, Brent futures remain stuck below $80 a barrel — a little too low for the spending needs of many member countries.
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Top oil trader Mercuria Energy Group Ltd. has even warned that OPEC+ may need to cut output further. But Riyadh may have its work cut out just holding together its coalition-of-the-willing.
For example, the United Arab Emirates carved out an exemption in the latest OPEC+ deal to modestly increase supplies as it pushes to deploy new additions in capacity. Abu Dhabi may not want to hold back forever.
Then there’s Russia. The country also received special treatment to make supply cuts in the form of either crude or fuel exports — a concession that helps blur how faithfully Moscow is adhering to its limits.
Despite commitments to OPEC+ and international sanctions, Russia managed to leapfrog the Saudis as No. 1 oil supplier to China last year. And in recent weeks, Moscow has pushed fuel exports to a nine-month high, regardless of its obligation to cut.
With President Vladimir Putin under pressure to maximize revenues for his war against Ukraine, OPEC+ unity may face tough times ahead.
–Grant Smith, Bloomberg News
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