Why does the world need OPEC and OPEC+ more than ever?

The conflict between Russia and Ukraine has aggravated concerns over the security of oil supplies and introduces further uncertainty over its price in the short term.

The price of Brent crude has been hovering well above the $100 per barrel mark since the beginning of military action in Ukraine. The fighting has stacked as much as $15 to $35 per barrel onto the price, according to analysts and industry reports. This ‘geopolitical premium’ has caused a volatile oil market due to unbalanced market fundamentals.

The already unstable oil market has been affected by unclear fundamentals, when we look at production and consumption, which are expected to keep prices elevated over the short to medium term. More importantly, the energy transition process, which allows industry players to assign more weight to alternative fuels and reduce reliance on fossil fuels, will further complicate the lives of oil analysts and forecasters.

As a consumer, these highly volatile energy prices concern me. It is in the interest of everyone that the oil market functions effectively since we all consume energy to power our vehicles, light our houses, heat our buildings and produce electricity. Also, the significance of crude oil as a raw material and a feedstock to make plastics, means this volatility will be experienced by many other industries.

The market is not expected to fix itself, even after the tensions in Europe ease. The fundamentals currently at play will have to be closely monitored to achieve a stable market.

Although OPEC — which includes 13 member countries including large producers like Saudi Arabia, Iraq and the UAE — accounted for around 33 percent of global oil production in 2021, it will most likely find challenges in maintaining a stable market. Therefore, it is of utmost importance to secure commitments from other producers, given the unusual market conditions.

Extra assurances are required to stabilize the market. OPEC along with OPEC+ members accounted for more than 50 percent of global oil supply last year.

These unprecedented circumstances further highlight the importance of broad-based cooperation, such as the one between OPEC and OPEC+. Considering current market fundamentals which will largely affect oil stocks in the near future, including tensions in Europe, limitations on global production due to a lack of investment and the need to craft energy transition, extending the current agreement between OPEC and OPEC+ beyond its formal end in September becomes significantly important.

Consumers need a stable environment to forecast oil prices even more than producers. In the recent past, the oil market has experienced major events that have caused significant crude oil price movements, such as the emergence of shale oil in the US, geopolitical crisis affecting supplies, the COVID-19 pandemic and unusual weather events that affect consumption.

A trustworthy, proactive, and knowledgeable body is needed to steer the oil sector to safety when markets are in turmoil. This is why the market needs OPEC and OPEC+.