International crude prices briefly hit a 13-year high of almost $140 a barrel last week as a boycott of Russian supplies deepened the shortfall in already tight world markets. Brent futures have since retreated by almost 30%, but fears persist over the danger of a long-term loss of exports from Russia, which is part of the OPEC+ coalition.
“This conflict has so far led to a number of issues, including rising commodity prices, which are further escalating global inflation,” OPEC said in its monthly report. “The effects of the conflict and especially the impact of rising inflation, if sustained, will lead to a decline in consumption and investments to varying degrees.”
Growing inflation is proving a major challenge for the world economy, and inflicting a cost-of-living crisis in many countries, as supplies of raw materials fail to keep pace with the post-pandemic recovery in consumption — and face further constraints from the war unleashed in Ukraine.
OPEC’s de facto leader Saudi Arabia has so far rebuffed U.S. pressure to fill the gap left by Russia by opening the taps, partly out of reluctance to harm its political partnership with Moscow, and partly from a belief that oil markets remain adequately supplied despite the turmoil.
Still, with major oil companies deserting Russia and international condemnation getting louder, the pressure on OPEC+ members to pick a side may eventually become irresistible.
The very acknowledgment of the war — even in careful terms that avoided the word “invasion” — is an unusual step for the group’s monthly report, which typically side-steps any controversies involving OPEC+ members. The 23-nation alliance next meets on March 31.
The report backs up Riyadh’s view that OPEC is producing enough to keep markets broadly balanced. Its 13 members boosted output by 440,000 barrels a day to 28.47 million a day in February — bringing the average for the year so far to 28.25 million a day, or a little above the average required this quarter.
If OPEC+ once again ratifies another modest supply increase at its upcoming meeting, this ought to give the market further relief, even if the alliance usually struggles to deliver its planned hikes in full.
The organization’s Vienna-based research department maintained estimates for global oil demand, forecasting growth of 4.2 million barrels a day this year to average 100.9 million a day. It conceded that “this forecast is subject to change in the coming weeks, when there is more clarity on the far-reaching impact of the geopolitical turmoil.”