Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman discussed this weekend their countries’ cooperation in the OPEC+ oil production pact in their second telephone call since Russia’s invasion of Ukraine.
Russia is a key partner to OPEC’s largest producer and de facto leader, Saudi Arabia, in the OPEC+ alliance, which has been working for years to manage oil supply to the market. And it looks like Russia will continue to be such, despite Putin’s invasion of Ukraine.
Since the start of the war in Ukraine, OPEC and the OPEC+ group have not publicly commented on the invasion, limiting themselves to saying that the market is currently run by “geopolitical events” or “the geopolitical tensions in Eastern Europe,” not by fundamentals.
The Saudi and Russian leaders “gave a positive assessment” of Saudi Arabia and Russia’s cooperation in the OPEC+ group during the phone call on Saturday, according to a statement from the Kremlin.
The Saudi Press Agency (SPA), for its part, said that the Saudi Crown Prince had received a call from Putin in which “bilateral relations between the two countries and ways of enhancing them in all fields in a way that achieves the interests of the two countries and their friendly peoples were discussed.”
“For his part, HRH the Crown Prince asserted the support of the Kingdom of Saudi Arabia for efforts that would lead to a political solution to the crisis in Ukraine and achieve security and stability,” the Saudi agency reported.
Despite the turmoil in the global oil and energy markets following Russia’s invasion of Ukraine, OPEC+ publicly presents a unified stance on reiterating that it’s not fundamentals that are currently driving the oil prices higher. And despite calls from many oil-consuming nations to boost production more than planned, the alliance continues to stick to its monthly increases of 400,000 barrels per day (bpd), as agreed upon in the summer of last year. OPEC+ has defied some expectations that since Russia’s invasion of Ukraine, the meetings within the group would be difficult. On the contrary, the alliance has held two of its shortest meetings ever since the end of February and hasn’t mentioned Ukraine in any public statement.
OPEC, and by extension OPEC+, has steered clear of political statements and references as a matter of policy. OPEC did not break up even when its founding members, Iraq and Iran, for example, were in a state of war in the 1980s.
The next meeting of the OPEC+ group is scheduled to take place on May 5 to decide production levels for June. While there is concern about an immediate demand slump with the Chinese lockdowns, OPEC+ has not pumped to its quota for many months. OPEC only raised its oil production by just 57,000 bpd in March from February, as African members’ struggles to pump more crude partially offset increases at the core OPEC members of the Middle East.
Production in the key non-OPEC member of the pact, Russia, has started to show signs of distress as storage capacity fills up, infrastructure and shipping logistics prevent Russia from exporting all the oil unwanted in the West to China and India, and refineries cut run rates as product storage is overflowing. As a result, companies are scaling back crude production.
OPEC+ struggles to deliver on its production targets, with estimates pointing to the group pumping 1 million bpd below its overall quota.
But OPEC now expects lower demand growth this year after it slashed last week its oil demand growth estimate for 2022 by nearly 500,000 bpd on the back of lower expected global economic growth with the Russian war in Ukraine and the return of COVID lockdowns in China.
The reduced demand growth forecast could give reason to OPEC+ to continue sticking to its nominal monthly production increases—even if it never achieves them—and to continue ignoring calls for more production at oil above $100 per barrel.