OPEC and allied oil-producing countries decided Thursday to stick to a modest increase in production, even as Europe's proposed phaseout of Russian oil threatens to yank millions of barrels off a global market already thirsty for crude.
At an online meeting, the alliance known as OPEC+ – which includes non-member Russia – stayed with its road map to gradually open the oil taps, agreeing to add 432,000 barrels per day in June. The plan is to make those regular increases to restore cuts made in 2020 during the worst of the pandemic recession.
That cautious approach will exacerbate a global energy crunch, with prices expected to rise further for oil and the gasoline, diesel and aviation fuel made from it. Those higher prices will worsen global inflation, eating away at people's ability to spend money that would otherwise support the economic recovery.
Analysts from Rystad Energy foresee the global market potentially losing up to 2 million barrels within six months if the 27 European Union countries approve a proposal to sanction Russian oil. Russia is expected to see production fall after losing its biggest oil customer – Europe.
OPEC has made it clear to European officials that the oil cartel is not going to increase production to compensate for lost Russian oil. Some members of the oil cartel already are not able to meet their quotas.
Oil prices are up more than 40 per cent this year. Bigger increases have been held back by the U.S. and other members of the International Energy Agency releasing oil from strategic reserves and diminished demand due to COVID-19 lockdowns and other restrictions in China.
Russia is the world's largest oil exporter with some 12 per cent of global supply. Before the invasion of Ukraine, Russian sent around 3.8 million barrels of oil per day to the European Union, where refineries turn it into gasoline and diesel fuel.
If the EU carries through on its plans to phase out crude imports in six months, Russia could try to sell those barrels to countries in Asia that are not participating in the boycott. But it might not be able to find customers for all of the oil displaced from Europe, even at tempting knockdown prices.
There is limited pipeline and rail capacity to Asia. And while some oil could be redirected by sea, that will depend on the availability of oil tankers willing to deal with Russian crude, given the risk of sanctions. Banks and companies that insure tanker fleets may be reluctant to facilitate the sale of Russian oil.
“Higher prices could be around the corner,'' said Bjornar Tonhaugen, head of oil markets research at Rystad Energy. “The oil market has not fully priced in the potential of an EU oil embargo, so higher crude prices are to be expected in the summer months if it's voted into law.”
U.S. oil prices rose Thursday, up 1.2 per cent after the meeting to $109.01 per barrel, or 43 per cent higher since the start of the year. International benchmark Brent crude rose 1.7 per cent, to $111.81 per barrel.
For U.S. consumers, average gasoline prices stood at $4.19 per gallon Wednesday, up $1.29 from a year ago. The price of crude oil accounts for about 60% of the price at the pump in the United States.
Diesel for trucks and farm equipment has risen even more over a year ago, by $2.34, to $5.43 per gallon.
Drivers in Europe, where taxes make up a larger proportion of the price at the pump, are paying more, too. Gasoline prices are averaging 1.95 euros per liter in Germany, or the equivalent of $7.77 per gallon, while diesel has been at 2.02 euros per liter, or $8.05 per gallon.
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