With Russia now becoming a pariah nation, the Organisation of Petroleum Exporting Countries (OPEC) said Wednesday that it would be difficult to compensate for the country’s production if it is completely shut out from exporting the commodity.
Speaking at the 61st Meeting of the Joint Technical Committee (JTC), OPEC Secretary General, Dr. Sanusi Barkindo, noted that the group was currently confronting a war in Ukraine whose far-reaching consequences could reshape the geopolitical landscape as well as world order itself. He stated that the conflict had also compounded the uncertainties related to the pandemic by stoking economic volatility and further elevating risk premiums for oil and other essential commodities, given that both Ukraine and Russia are key global exporters, including of essential agricultural goods.
Many nations in Europe and the Americas recently begun abandoning Russian oil after it invaded Ukraine, saying the war was unjustifiable.
But Barkindo stated that the potential loss of more than seven million bpd of Russian oil and other liquids exports, around seven per cent of current global demand, either through sanctions or voluntary actions, was already having major repercussions on energy markets.
“No matter how you crunch the numbers, there is simply no way to make up for a loss in volumes of this magnitude given the current demand outlook. In fact, the last major supply disruption of this size, 5.6 million bpd, occurred in 1978 and 1979 during the Iranian Revolution.
“At that time, the spare production capacity was 9 million bpd, nearly three times OPEC-10’s current levels of around 3.3 million bpd,” Barkindo stated.
The Nigerian-born OPEC head urged global leaders to follow the example of multilateralism set by the cartel and once again ensure an unhindered, stable and secure flow of energy to the whole world.
He explained that while the market remains on edge and producer countries are confronting forces that they cannot control, it is, however, within OPEC’s control to stay the course and faithfully implement the decisions it undertook jointly to support the market’s stability and growth.
Describing the current situation as fluid and constantly evolving, Barkindo stated that until more clarity is available, OPEC will for the moment maintain the underlying assumptions that pent-up demand will continue to drive economic growth, and along with it, the world’s thirst for energy.
Meanwhile, OPEC and its allies are expected to rebuff calls this week to fill in the supply gap left by falling oil exports from coalition member Russia.
The 23-nation group led by Saudi Arabia was expected to ratify plans for another modest production increase scheduled for May when it meets on Thursday (today) according to a Bloomberg survey.
Several delegates from the OPEC and its partners privately predicted the outcome, and public comments from key nations point the same way.
Russian oil exports have plunged by a quarter as many international buyers boycott the country following its invasion of Ukraine. Companies including Shell Plc and TotalEnergies have pledged to halt purchases on the short-term market and wind down long-term contracts.
With oil prices holding above $100 a barrel, a lack of additional supplies to compensate for Russian losses threatens to further stoke the inflationary surge that was endangering the global recovery and inflicting a cost-of-living crisis on millions.
Major importers are urging OPEC+ nations with spare production capacity to open the taps faster, but the group’s key members have so far remained unmoved.
All 23 traders and analysts in the survey predicted the group would stick with its plan for an increase of 432,000 barrels a day in May.
While that theoretically represents a slight increase from previous 400,000-barrel hikes as OPEC+ fine-tunes individual nations’ production quotas, most members have been struggling to deliver the full amount pledged for several months.
Global markets were under strain even before the invasion, as supplies failed to keep up with the vigorous recovery in fuel demand following the pandemic.
Part of the problem lies with OPEC+ itself, which is struggling to revive all the output halted during the Covid slump, after reduced investment eroded capacity in members like Angola and Nigeria.
Nigeria has been unable to meet its OPEC quota as a result of crude oil theft, long years of under-investment, vandalism and outright sabotage, losing over 400,000 bpd to the development.