There Is Definitely Potential for an OPEC+ Collapse

There Is Definitely Potential for an OPEC+ Collapse
OPEC's next scheduled decision in late March will be a test for the group.

There is definitely the potential for a collapse in OPEC+ agreement - if Russia pulls out and sets the stage for less or no cooperation in the future - with oil prices surging and calls for OPEC to increase supply growing louder.

That’s what Joseph Gatdula, the head of oil and gas at Fitch Solutions, said in a statement sent to Rigzone, adding that, despite the lack of official sanctions on Russian energy trade, de-facto bans on Russian crude and the threat of sanctions have seen oil prices surge to $140 per barrel.

“The fallout in relations could be caused by OPEC raising production levels to help cool prices above earlier agreed production cut tapering of 400,000 barrels per day each month,” Gatdula told Rigzone.

“The increase in supply would help cushion the loss of Russian crude from markets and weaken Russia’s ability to sustain its resistance to sanctions,” he added.

The Fitch Solutions oil and gas head noted that OPEC interests lie in keeping markets well supplied to foster global economic growth and limit volatility, balanced by maximizing prices.

“Inflationary pressures and U.S. Fed rate hikes are additional factors which could see global crude consumption fall along with high oil prices adding to the pressure for OPEC to increase global oil supply,” Gatdula said.

“If OPEC fails to act, high prices would put downward pressure on demand and likely initiate a global economic slowdown,” he added.

“OPEC’s next scheduled decision in late March will be a test for the group and could indicate either its support for Russian interests or to reaffirm its role as a key supporter of the global economy,” Gatdula continued.

OPEC+’s next meeting - the 27th OPEC and non-OPEC Ministerial Meeting - is scheduled to be held via videoconference on March 31. The organization’s previous meeting - the 26th OPEC and non-OPEC Ministerial Meeting - was held via videoconference on March 2.

At its previous meeting, OPEC+ reconfirmed its decision to adjust its monthly overall production up by 400,000 barrels per day for the month of April. Following the conclusion of that meeting, OPEC noted on its website that current oil market fundamentals pointed to a well-balanced market. The statement added that current volatility was not caused by changes in market fundamentals but by current geopolitical developments.

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