"Putin is putting OPEC\u2019s patience to the test"

" Putin is putting OPEC\u2019s patience to the test \r\n\r\nRussia has so far been able to maintain its relationship with the Organisation of Petroleum Exporting Countries (OPEC) and certain other oil and gas powers, mainly in the East. However, over a year into the conflict, Putin appears to be gradually fracturing his relations with Saudi Arabia and other OPEC members. Over the last year, Russia has been developing energy relations with powers that are open to its cheap oil and gas, after having strict sanctions imposed on its energy sector by the U.S. and Europe. It has succeeded in attracting the huge Indian and Chinese markets, becoming China\u2019s main crude exporter earlier this year. But now Russia may be harming OPEC, the very organisation that has bolstered its oil and gas industry all these years.\r\n\r\nOPEC expanded to include Russia in 2016, in OPEC+, under a deal led by Saudi Arabia. As Russia lost out on oil sales to the West, OPEC+ appeared to support Putin in his aims to profit from high oil prices, agreeing to\u00a0 production cuts \u00a0across its member states to support high oil prices. However, at the OPEC+ meeting earlier this month, it was\u00a0 reported \u00a0that Saudi officials were unhappy with Russia\u2019s behaviour. The organisation agreed to reduce its oil output by 500,000 bpd at a meeting in April, and yet Russia was continuing to supply large amounts of discounted oil to the market to support its faltering economy and help its efforts in the conflict against Ukraine. This is happening even though the G7 group of nations has imposed a\u00a0 $60 per barrel cap \u00a0on Russia\u2019s oil exports.\r\n\r\nIt now appears that Putin wanted to gain OPEC\u2019s support to benefit from high energy prices to the detriment of the group\u2019s other member states. OPEC\u2019s repeated output cuts have pushed prices higher and higher in the past, which has allowed Russia to undercut OPEC\u2019s prices to attract buyers and continue to sell crude. India, China, and several other countries have so far ignored Western sanctions, using this moment as an opportunity to stockpile cheap oil. This has led OPEC member states to lose their market share. For example, in the first two months of the year, Russia overtook Saudi Arabia as\u00a0 China\u2019s biggest oil exporter , shipping around 1.94 million bpd to the Asian giant, an increase of 23.8 percent from the same period in 2022.\r\n\r\nBut now OPEC is taking notice, meaning that Putin may not be able to continue this tactic for long. OPEC\u2019s member states are rapidly losing confidence in Russia, with Saudi Arabia\u2019s energy minister reportedly\u00a0 saying that he was \u201cfed up with OPEC members not meeting oil output goals\u201d and was seeking \u201cmore oil output transparency from Russia.\u201d To date, member states looking to increase their production levels, such as the UAE, have been patient. But if Russia continues to undercut OPEC prices and ignore its quotas, it could lead to chaos in the so-far stable energy alliance. In addition, due to Russia\u2019s strong oil exports, despite OPEC output cuts, the price of oil has been falling. This suggests that Russia may eventually need to sell its crude at a loss to maintain export levels, to the detriment of its economy and war effort.\r\n\r\nMeanwhile, it appears that OPEC cannot agree on its quotas. The group and its allies met earlier this month to discuss a new deal, with the possibility of adjusting member state quotas. Additional production\u00a0 cuts of up to 1 million bpd were considered \u00a0at the meeting to drive oil prices up. But the idea was dismissed due to concerns about global economic growth and the rising energy demand. It is believed that the OPEC+ chair needs to have the Brent crude benchmark reach\u00a0 above $80 a barrel \u00a0to pay for its government spending and import bill.\r\n\r\nThe price of oil has been highly volatile in recent years owing to the Covid pandemic and, last year, to the Russian invasion of Ukraine. The Brent benchmark rose to over $130 a barrel following the start of the conflict in 2022 and has since fallen to lows of under $70 a barrel in March this year. David Fyfe, from Argus Media,\u00a0 stated :\u00a0\u201cWe are seeing a sharp slowdown in economic growth in developed countries, almost to the point of them going into recession\u2026 And we don't think the demand for oil in China will increase a great deal in the next few months. So the market will not be that tight in the second half of the year.\u201d\r\n\r\nThe price of oil has fallen dramatically since the start of the war, thankfully for consumers facing economic hardship after the extremely high energy bills of 2022. This is largely due to the fact Russia used OPEC\u2019s production cuts \u2013 meant to drive crude prices up \u2013 to undercut the organisation by supplying cheap oil to two of the world\u2019s biggest consumers \u2013 India and China. If Russia continues to play this game, it is unlikely to keep the backing of OPEC+, which has so far not condemned or punished Russia\u2019s actions."

"Putin is putting OPEC\u2019s patience to the test"

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