As OPEC Plus nears a milestone, focus shifts to Russia and the US

Officials from OPEC, Russia and other oil-producing countries will arrive at Thursday’s meeting of OPEC Plus at what could be an important crossroads, as the group’s gradual restoration of output from the deep cuts of the pandemic is nearly complete.

The producers of OPEC Plus will most likely restate the decision taken last month to lift output by 648,000 barrels per day in August. That would bring the group’s total output target to about 44 million barrels a day, roughly the prepandemic level.

Reaching that milestone may give Saudi Arabia, OPEC’s de facto leader, and other producers, such as the United Arab Emirates, an opportunity to reconsider how OPEC Plus operates, including revisiting the overambitious quotas for many members that are leaving the group’s output well short of its targets. For instance, the International Energy Agency estimates that the group will only achieve about half of the increase set for July and August.

The Saudis and others may also ponder whether they want to continue working closely with Russia, a co-leader of OPEC Plus whose oil supplies have been targeted by Western sanctions because of its invasion of Ukraine. Members of OPEC, which claims to be neutral on political issues, are clearly aware of Russia’s slipping crude output.

And the Saudis have lately signaled a possible thawing in relations with the United States, the world’s largest oil producer. Washington has been pressing Saudi Arabia to increase supplies in an effort to bring down prices at the pump for hard-pressed drivers in the United States and other countries.

Those appeals went unheeded until OPEC Plus’s last meeting, when the group said it would bolster output by 648,000 barrels a day, roughly 50 percent more than it had pledged in prior months, a move that was seen mainly as a gesture of good will to the Biden administration. Later that day, administration officials said that Mr. Biden would visit Saudi Arabia, a trip that is now planned for mid-July.

The meeting comes as the price of Brent crude, the international benchmark, has surged more than 50 percent, to $116 a barrel, this year as sanctions on Russia stoked fears of supply shortages in an already taut market.

There is logic in arguing that Moscow’s leadership role in OPEC Plus should be downgraded. Under tightening Western sanctions, Russia will probably grow weaker as an energy power and have less maneuvering room to raise or lower production to manage the oil markets.

“That whole system of OPEC Plus doesn’t work if Russian production is going down not up,” said Daniel Yergin, an energy historian, in an interview last month.

So far, though, the Saudis and the Emiratis seem inclined to shrug off such arguments. The Saudis have spent years trying to strengthen the waning clout of OPEC by bringing Russia and other energy players, like Kazakhstan, into the fold.

And most signs are that the Saudis are reluctant to ditch Moscow now. Russia may have acquired near pariah status in Western eyes because of the war in Ukraine, but from a Saudi point of view, it remains one of the two largest oil exporters, with Saudi Arabia.

In that line of thinking, Russia is a more valuable partner than OPEC members such as Iran, Libya, Nigeria or Venezuela. The oil industries of those countries are also hamstrung by sanctions or by other problems.

Also, Russia’s success in finding markets for its oil in countries like China and India has demonstrated that it still has leverage and has confounded forecasters who predicted that the country’s output would decline faster than it has so far.

“The big question for the future is whether Russia will continue to act as co-pilots with the Saudis. The answer is most likely yes,” wrote Ibrahim AlMuhanna, a former longtime adviser to Saudi energy ministers, in “Oil Leaders,” his recently published book about Saudi Arabia and OPEC.

In the last six years “good results” came from cooperation with Russia, Mr. AlMuhanna said in an interview. “Therefore, it will most likely continue in the future.”

Still, the Saudis will probably want to have something to offer President Biden when he visits. If the Saudis look recalcitrant, they risk unwelcome American actions.

Washington has shown plenty of willingness to intervene in the oil markets. Sanctions on Iran, for instance, are preventing the sale of substantial quantities of oil that Tehran could produce or already has in storage.

At this week’s Group of 7 meeting, the Biden administration proposed capping the price of Russian oil. The aim of the plan, which has yet to be fleshed out, would be to deny President Vladimir V. Putin funds for his war and ease prices for consumers.

OPEC officials have not publicly commented on the proposal, but they would probably view the price cap idea as a new source of uncertainty that could further complicate the task of managing already volatile energy markets.

Analysts say that while the Saudis may agree to raise production in the coming months, they will most likely proceed cautiously. They are juggling their desire to placate Washington with other considerations, including keeping other producers, among them Russia, on board into 2023. One option may be to increase Saudi production to make up shortfalls from producers like Angola and Nigeria, though even that might prove a hard sell in OPEC.

While there are various estimates about how much extra oil OPEC Plus could produce, most analysts agree that only Saudi Arabia and a few other countries could add a lot more.

If traders decide that the bottom of the barrel has been reached, then panic might ensu, analysts say. That could happen if the Saudis and others make big promises and then prove unable to deliver.

“If you just offer gradual increases, then you still have a veil of mystery,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm.