Global oil prices have climbed by roughly 11% since OPEC+ met in early February, touching their highest levels since 2014, and the group of major oil producers will soon face another decision on production levels.
OPEC+, comprised of members of the Organization of the Petroleum Exporting Countries and it allies including Russia, will hold its next meeting on March 2, as Russia’s attack on Ukraine threatens to disrupt already tight supplies of crude oil, and Iran and world powers look to negotiate a nuclear deal that would lead to more oil in the global market.
The meeting has two potential outcomes, “status quo” on scheduled expansion of output, or acceleration of output quotas, says Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. It seems most likely OPEC+ will merely follow its current pattern and expand output on schedule by 400,000 barrels a day, he says. If that’s the case, market prices will see little impact, as “eyes will likely still be on the impact of Russian sanctions.”
On Feb. 24, Russia launched a full-scale invasion on Ukraine, leading the U.S. to announce additional sanctions on Russia and set limits on exports to the country. The U.S. and European allies had previously announced sanctions aimed at limiting Russia’s access to the global financial system.
Read: Ukraine invasion sends wheat, corn and oil soaring because Russia is a ‘commodity superstore’
But unless the U.S. and European Union have SWIFT, an international payments network, delist Russian banks en masse from the global banking system, there will be little impact on oil supplies, says James Williams, energy economist at WTRG Economics.
The EU looks unwilling to impose banking sanctions via SWIFT so oil prices “will not go too much higher as Russian crude exports will continue.” Once this becomes clear, prices will start to ease, he says. If SWIFT takes steps against Russian banks, Williams expects OPEC to make up for the loss in Russian oil exports, possibly eliminating almost all of the group’s spare production capacity, which could lead to higher prices.
Oil prices this month already marked their highest settlements in more than seven years, with the front-month West Texas Intermediate crude settling at $95.46 a barrel on Feb. 14 and global benchmark Brent crude ending at $99.08 on Feb. 24, when both benchmarks topped $100 intraday.
Read: Why Russia’s invasion of Ukraine could lift oil prices to a 14-year high
At the $100 mark, there will be substantial increases in production, especially by U.S. private producers, and conservation by consumers, says Jay Hatfield, chief investment officer at asset management firm ICAP. He believes prices will generally hold to the $80 to $100 range this year as any potential sanctions on Russian oil exports will be “circumvented by exports to China.”
It’s also very unlikely OPEC+ will raise production beyond its planned increase as that would “appear to be a concession” to U.S. President Joe Biden, who has called for higher OPEC+ output in an effort to lower gasoline prices.
The group hasn’t been able to meet its current production quotas. Oil output among OPEC+ members was 700,000 barrels a day short of the group’s collective output quota of 38.74 million barrels a day in January, according to an S&P Global Platts survey released earlier this month.
Meanwhile, it’s not a surprise that activities between the signers of the Joint Comprehensive Plan of Action, also known as the Iran nuclear deal, and Iran have risen noticeably in recent weeks, says Darwei Kung, head of commodities and portfolio manager at DWS Group.
Read: Potential for an Iran nuclear deal keeps oil rally in check
It’s not clear how the Iran nuclear negotiations would change OPEC+’s decision on production, and the group of oil producers is unlikely to act before an actual Iran agreement is reached, says Kung. Still, Russia’s invasion of Ukraine has “placed further pressure for the U.S. and EU to reach an agreement with Iran, given rising oil prices.”