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Russia produces more than 10 million barrels of oil per day and helps OPEC keep prices high
But members of the “OPEC Plus” group of oil producers – which includes Russia – are not in a hurry to help.
What is OPEC Plus?
OPEC Plus is a group of 23 oil-exporting countries that meets every month in Vienna to determine how much crude oil will be put on world markets.
This group includes 13 member countries of the Organization of Petroleum Exporting Countries (OPEC), which are mainly Middle Eastern and African countries.
OPEC was established in 1960 with the aim of determining the global supply and price of oil.
Currently, OPEC countries produce regarding 30% of the world’s crude oil, or regarding 28 million barrels per day. Saudi Arabia is the largest oil producer within OPEC, producing more than 10 million barrels per day.
In 2016, when oil prices fell dramatically, OPEC joined with 10 non-OPEC oil producers to create “OPEC Plus.” Among the 10 new countries was Russia, which also produces more than 10 million barrels per day.
Together, these countries produce regarding 40 percent of the world’s total crude oil.
“OPEC Plus controls supply and demand to balance the market. It keeps prices high by cutting supplies when oil demand is low,” says Kate Dorian, of the Energy Institute.
OPEC Plus can also lower prices by pumping more oil into the market, which is what major importers like the United States and the United Kingdom want.
picture released, Getty Images
British Prime Minister Boris Johnson was unable to persuade Saudi Arabia and other countries to increase their oil production
How did oil prices go so high?
In the spring of 2020, with the coronavirus spreading around the world and countries going into lockdown, the price of crude oil collapsed due to a lack of buyers.
“Producers were paying people to give them oil because they didn’t have enough space to store it all,” Dorian says.
After that, OPEC Plus members agreed to cut production by 10 million barrels per day, with the aim of raising prices once more.
In June 2021, as demand for crude oil began to recover, OPEC Plus began to gradually increase supply, by pumping an additional 400,000 barrels per day into global markets. It is now pumping regarding two and a half million barrels of oil less per day than it was pumping in the spring of 2020.
However, when Russia invaded Ukraine, the price of crude oil soared to over $100 a barrel. This has led to a significant increase in petrol prices at the stations.
“When OPEC Plus cut supplies by 10 million barrels per day in May 2020, it was a very significant drop,” says David Fife, chief economist at Argos Media.
“Now they are increasing supply at a slow rate that does not take into account the effects of the Russian-Ukrainian crisis,” he adds.
Europe currently imports more than two and a half million barrels of crude oil per day from Russia, but the European Union on Wednesday proposed its toughest measures yet once morest Russia, including imposing a complete ban on oil imports.
European Commission President Ursula von der Leyen said the proposed package of sanctions was aimed at increasing pressure on Russia while minimizing damage to Europe.
She indicated that Russian crude oil will be abandoned within six months.
The European Union has been focusing for weeks on how to stop relying on Russian oil and gas. The union has already pledged to cut gas imports by two-thirds by the end of 2022 and is now planning to phase out crude oil over six months and refined products by the end of 2022.
The sanctions package must first be approved by EU ambassadors. It is scheduled to be signed within the next few days.
picture released, Getty Images
Vladimir Putin and OPEC Secretary General Muhammad Barkindo: OPEC Plus reduced oil supplies in 2020
Why does not OPEC Plus boost oil production?
US President Joe Biden has repeatedly appealed to Saudi Arabia to increase its oil production, but to no avail.
British Prime Minister Boris Johnson also asked the Kingdom and the United Arab Emirates to increase production, which was also rejected.
“Saudi Arabia and the UAE have excess capacity, but they refuse to increase production, they do not want to take orders from the West,” says Kate Dorian.
“They say the gap between supply and demand is narrowing, and today’s high prices simply reflect panic on the part of oil buyers.”
Other countries in OPEC Plus are finding it difficult to increase their oil production.
“Producers like Nigeria and Angola have been reducing their production quotas by a million barrels per day over the past year,” says David Fife.
“Investment fell during the pandemic – oil facilities were not well maintained in some cases. Now, these countries have discovered that they cannot fully achieve increases in production,” he adds.
What is Russia’s position?
OPEC Plus must also respect Russia’s wishes, as it is one of the two largest partners in the alliance.
“The Russians are happy with prices at this level, and they will gain nothing if the prices go down,” says Carol Nakhle, chief executive of Kristol Energy.
“OPEC wants to maintain good relations with Russia, so they are likely to stick with the agreement they all made last year. That means a very gradual increase in crude supplies between now and September.”
