NEW YORK -- The leaders of OPEC and its oil-producing allies are sticking with their plan to gradually increase oil production while Russia's invasion of Ukraine rattles markets, reshapes alliances, kills civilians and sends the price of crude skyrocketing.
The OPEC+ coalition of oil producers — made up of OPEC members led by Saudi Arabia and non-cartel members led by Russia — chose to increase oil production by 400,000 barrels per day in April.
Since July, the coalition has been adding that amount of oil each month to gradually restore deep cuts to production made early in the coronavirus pandemic when demand for fuel plummeted. People have been driving and flying more as COVID-19 restrictions have eased in parts of the world, but the amount of oil on the market hasn't kept up with demand.
Both U.S. and international benchmark crude oil pushed past $110 a barrel Wednesday as investors worried about the invasion by Russia, one of the world's largest energy suppliers.
OPEC’s decision to stick with only modest supply increases while Russia is waging a war is likely to prolong higher oil and gas prices.
“Russia is such a big player, both in the crude and refined export markets, that if some of that oil comes off the market it does cause a problem,” said Jacques Rousseau, managing director at Clearview Energy Partners. “Some of what’s going on in the market now is that people are speculating that there is going to be a serious supply shortfall.”
The coalition of oil-producing nations can benefit from high prices, but those high energy prices can backfire and push oil-consuming economies — their customers — into recession.
Before Russia's invasion of Ukraine, the International Energy Agency asked OPEC+ to boost production beyond its planned increase, due to tight global oil supplies. The IEA took its own action to ease climbing prices Tuesday when the Paris-based organization, which counts the U.S., Germany, France, the United Kingdom, Japan and Canada among its members, agreed to release 60 million barrels of oil from strategic reserves to send the message that oil supplies won't fall short due to the war.
Adding to supply constraints, some oil buyers in recent days have shunned Russian crude, fearing that if sanctions were applied to Russian oil or gas, their purchased oil could be rendered unusable.
“Cargoes have already been rejected by European refiners in the market, because people are afraid sanctions might be coming, and so they don't want to be caught with some cargo they can't resell,” said Amy Myers Jaffe, research professor and managing director of the Climate Policy Lab at Tufts University.
Russia's actions in Ukraine have made its crude oil “one of the most toxic barrels on the market,” said Louise Dickson, senior oil market analyst at Rystad Energy.
Also, Russia may end up reducing its oil exports because it’s using more fuel.
“Doing an invasion of the scale Russians are doing in Ukraine requires a lot of fuel, so their domestic use is going to go up,” Jaffe said. “So presumably, we’re going to see less exports of Russian oil, unless they increase production because their demand’s going up.”
Some OPEC+ nations have spare production capacity and theoretically could boost their own output for a while if Russia supplies less oil to the market or more buyers reject Russian crude. But those other nations may be reluctant to turn up the pumps.
“They’ve always kind of fallen back on the idea that they don’t want to move into anybody else’s space,” said Jacques Rousseau, managing director at Clearview Energy Partners. “If it does get to the point where Russian oil is pushed away, then the question becomes, where does the replacement oil come from?”
Saudi Arabia has the most spare capacity, followed by Iran and then the United Arab Emirates, according to Clearview.
Other OPEC+ nations, including Angola and Nigeria, have been producing below their target levels.