Stable US oil production; OPEC-Plus sticks to modest production plan even as war in Ukraine rages
Despite strong demand and a raging war in Ukraine that could disrupt global supply, U.S. crude producers kept the production line going through the last week of February — as they have throughout the months, the Energy Information Administration (EIA) said Wednesday.
Production last week was flat with the previous three weeks at 11.6 million bpd, the EIA’s latest weekly oil report showed. This largely reflects the collective decision of publicly traded producers to hold steady despite calls from investors to divert investment away from fossil fuels.
On the same day, OPEC members and an allied group of producers led by Russia – OPEC-plus – agreed to further increase production by a modest 400,000 bpd in March. This would continue a targeted rate of monthly supply increases launched in August 2021 to phase out production cuts of almost 10 million b/d made in April 2020 amid the pandemic.
The cartel’s decision comes amid an escalating war between Russia and Ukraine. As shelling and fighting intensifies across Ukraine and sanctions intensify against Russia, analysts have said oil supplies, which are already struggling to catch up with demand, could shrink. The fear is that Russia, a major producer, will lose its ability to export much of its crude as Western countries pile punishment atop the Kremlin-controlled Russian economy and financial system.
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Brent crude, the international benchmark for oil prices, hovered near $110/barrel on Wednesday — up nearly 40% from the start of 2022.
“Investors, traders and politicians are scrambling to deal with the deepening standoff between Russia and Ukraine,” said Louise Dickson, senior analyst at Rystad Energy. “The current realistic scenario is that a large part of Russian crude oil, as well as refined petroleum products, will no longer be palpable in the market and will create a supply deficit for the duration of the armed conflict.”
Sen. Edward Markey, Democrat of Massachusetts, introduced legislation this week to ban imports of Russian crude, noting that the United States last year imported 198 million bpd of crude and 354 million bpd j Unfinished oils from Russia – about 8% of total US imports.
Against this backdrop, analysts at ClearView Energy Partners LLC said that absent an increase in U.S. or OPEC-plus production, supply issues could prove to be long-lasting.
“We see a horizon of lasting scarcity risk and potentially long conflict,” ClearView analysts said. “…Russia’s invasion of Ukraine demolished decades of diplomatic architecture in a matter of days. The global mess left in its wake could linger for years.
And as long as the sanctions remain in place, “the world could face staggering supply risks, as Russia can dig a bigger hole in supply than strategic reserves or global spare capacity can fill.” sustainably,” ClearView analysts said.
U.S. oil imports averaged 5.8 million bpd last week, down 1.1 million bpd from the previous week, the EIA said.
Commercial crude inventories in the United States, excluding those in the Strategic Petroleum Reserve (SPR), fell by 2.6 million barrels per week, according to the EIA. At 413.4 million barrels, inventories were 12% below the five-year average, the widest gap so far this year.
Total domestic oil demand, meanwhile, averaged 21.7 million barrels a day over the past four weeks, up 11% from the same period last year. Consumption of motor gasoline, distillates and jet fuels has risen noticeably – as it has for months, putting the balances under pressure.
Earlier this week, the International Energy Agency announced it would release 60 million barrels of reserves to counter the disruption imposed by the fallout from Russia’s invasion of Ukraine. The United States said 30 million of that total would come from the SPR.
“America will lead this effort…and we stand ready to do more if necessary, united with our allies. These measures will help lower gasoline prices here at home,” President Biden said during his State of the Union address on Tuesday evening.