The world’s biggest oil exporters met on May 5 amid calls from around the world to cut prices.
But members of the group of oil-producing countries OPEC+ — which includes Russia — are not rushing to help.
But what is OPEC+?
OPEC+ is a group of 23 oil-exporting countries that meet every month in Vienna to decide how much crude oil will be put on the world market.
At the core of this group are the 13 members of OPEC (Organization of Petroleum Exporting Countries), which are mainly countries in the Middle East and Africa. It was formed in 1960 as a cartel, with the aim of fixing the world supply of oil and, consequently, its price.
Currently, the nations that make up OPEC produce about 30% of the world’s crude oil — around 28 million barrels a day. The entity’s largest producer is Saudi Arabia — more than 10 million barrels a day.
In 2016, when oil prices were particularly low, OPEC joined forces with 10 producers that were not officially part of the group to create OPEC+.
Among them is Russia, which also produces more than 10 million barrels a day.
Together, these nations account for about 40% of all the world’s crude oil.
“OPEC+ adapts supply and demand to balance the market,” says Kate Dourian of the Energy Institute. “They keep prices high by reducing supply when demand for oil drops.”
OPEC+ could also lower prices by putting more oil on the market, which is what big importers like the US and UK want.
How did oil prices get so high?
In the spring of 2020, as Covid-19 spread across the world and countries went into lockdown, the price of oil plummeted due to a lack of buyers.
“The growers were paying people to take the oil out of their hands because they didn’t have enough space to store everything,” says Dourian.
Afterwards, OPEC+ members agreed to reduce production by 10 million barrels a day to raise the price.
In June 2021, with demand for oil starting to recover, OPEC+ began to gradually increase supply, putting an extra 400,000 barrels a day on world markets. It is now supplying about two and a half million barrels less a day than it did in spring 2020.
However, when Russia invaded Ukraine, the price of oil soared to over $100 a barrel. This caused significant increases in the price of gasoline at the pumps.
“When OPEC+ cut supply by 10 million barrels a day in May 2020, they cut a lot,” says David Fyfe, chief economist at Argus Media.
“Now they are increasing supply at a slow pace that doesn’t take into account the effects of the crisis between Russia and Ukraine.”
There is fear among oil buyers that the European Union will follow the United States and impose an embargo on Russian oil imports, says Fyfe. Europe currently imports more than two and a half million barrels of oil from Russia a day.
“The threat of a Russian oil embargo has scared the markets,” he says, “because it could lead to a sharp squeeze in supply.”
Why doesn’t OPEC+ increase oil production?
US President Joe Biden has repeatedly appealed to Saudi Arabia to increase its oil production, but to no avail.
UK Prime Minister Boris Johnson also called on Saudi Arabia and the United Arab Emirates to increase production. The request was also denied.
“Saudi Arabia and the United Arab Emirates have idle capacity, but they refuse to increase production on their own,” says Kate Dourian.
“They don’t want to be dictated to by the West. They are saying that the supply and demand gap is closing and that today’s high prices simply reflect panic on the part of oil buyers.”
Other OPEC+ nations are finding it difficult to increase their oil production.
“Producers like Nigeria and Angola have underestimated their production quotas by one million barrels a day last year,” says David Fyfe.
“Investment has dropped during the pandemic – and oil facilities, in some cases, have not been maintained. Now, they are finding that they cannot really deliver production increases in full.”
What is Russia’s position?
OPEC+ also has to respect Russia’s wishes, as it is one of the alliance’s two biggest partners.
“Russians are happy with prices at this level,” says Carole Nakhle, CEO of Crystol Energy.
“They have nothing to gain from seeing them decrease. OPEC wants to maintain good relations with Russia, so they are more likely to stick with last year’s deal. That means increasing oil supply very gradually from now until September.”