Oil Market Recovery and the Future of OPEC+: Exit the Bear?

As oil prices continued to rise in the early weeks of 2022 with demand growing and global spare production capacity growing increasingly thin, prices were sent surging by the impacts of a decision by Russia, the largest non-OPEC producer in the OPEC+ group, to invade neighboring Ukraine. Russia’s status as one of the group’s key high-capacity producers sheds light on the essential nature of Moscow’s participation in the group, in addition to the key variable of ties between Riyadh and Moscow being critical for the organization’s perseverance through multiple crises. These are critical dynamics that need to be weighed alongside the growing number of challenges to both OPEC+ ’s performance and, by extension, its credibility. In addition to the growing number of producers that are unable to satisfy their monthly production requirements, the war’s broader oil market impact and its effect on Russia’s upstream sector pose serious challenges for continued cooperation between OPEC and non-OPEC members of the alliance. Foremost among these is the question of how the group will attempt to implement future market balancing strategies if its ability to capture a significant share of the market is greatly diminished by capacity constraints and a consistent refusal of major crude buyers to purchase Russian barrels. While a Russian departure from OPEC+ is highly unlikely in the near term, the withdrawal of major oil and gas firms as well as oil field service firms will likely impact Russia’s ability to maintain pre-war export levels, and this may result in the entry of Chinese or possibly Indian firms to support Russian production. It is possible that oil and gas investment being directed away from Russia may support the production capacity of lagging OPEC+ producers in Africa and the Middle East, but the group’s long-term ability to continue executing coherent market balancing strategies will be closely linked to the long-term impact of the conflict on Russia’s ability to preserve its share of oil markets.