The BBC published an article on May 4 explaining why OPEC refused to increase output to lower oil prices.
Since the war outbreak between Russia and Ukraine, global oil prices have skyrocketed, surpassing 100 dollars a barrel, the highest mark in eight years.
According to the BBC, President Biden has repeatedly asked Saudi Arabia to raise its oil output.
The British Prime Minister also requested Saudi Arabia and the United Arab Emirates to increase their output.
However, they both got rejected.
Kate Dourian, a fellow of the U.K.’s Energy Institute, said that although large oil producers, such as Saudi and the UAE, have spare capacity, they refuse to increase output because they don’t want the West dictating to them.
David Fyfe, a chief economist at Argus Media, stated that investment dropped due to the Covid-19 pandemic, and oil installations fell into poor maintenance. Therefore, some producers, such as Nigeria and Angola, cannot provide total output increases.
Carole Nakhle, CEO of Crystol Energy, said that Russia is satisfied with high prices. Therefore, Russia has nothing to gain in seeing oil prices go lower.
The 13 members of OPEC currently account for about 30% of the global crude oil production, at about 28 million barrels per day.
In 2016, OPEC added ten oil producers to create OPEC Plus. Saudi Arabia and Russia are the two biggest partners, producing around 10 million barrels a day each.
Together, these countries make up about 40% of the world’s crude oil production.
U.S. Energy Information Administration reported that China surpassed the U.S. to become the world’s largest crude oil importer in 2017. OPEC supplied 56% of its imports.
Reuters reported that China has made up 44% of the global growth in oil imports since 2015.
Statista shows that in 2020, China alone imported more oil and oil products than any other region, at about 13 million barrels per day, followed by Europe with 12.6 million barrels per day. The U.S. recorded only 7.8 million barrels per day, ranking fourth.
However, as Reuters reported, China’s annual oil imports fell 5.4% in 2021—the first drop since 2001 due to Beijing’s crackdown on the refining sector.
Besides, its draconian zero-covid measures could also threaten demand.
Financial Times showed Standard Chartered’s estimation that Chinese oil consumption plummeted to 1.1 million barrels per day in April. This figure constitutes nearly 1% of global demand.
Amrita Sen, a chief oil analyst at consultancy Energy Aspects, said that concerns about the decline in Chinese oil consumption had imposed the most significant sway on crude prices since the beginning of April. Other traders think that Chinese demand could fall by as much as 3-4 million barrels per day, almost equal to Russia’s estimated loss of production amid sanctions.
She highlighted the current market view from traders is that Russia cancels China out.
Sen added, “The catalyst has to come from demand, it has to come from China.”