- According to the WSJ, Russia could be excluded from the OPEC production quota agreement after missing targets.
- OPEC members debated the idea that Western sanctions and an EU ban would limit Russia’s oil production.
- Here’s what analysts expect for global oil supplies if Russia is locked out of OPEC.
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Some members of the Organization of the Petroleum Exporting Countries (OPEC) are considering removing Russia from a group of oil production deals, the Wall Street Journal reported on Tuesday.
Experts say the move could have a significant impact on oil prices and the global energy market.
Russia’s economy and oil production have suffered since the invasion of Ukraine in late February, which led to Western sanctions and import bans on its energy. Oil production fell 7.5% in mid-April and the Kremlin said it could fall as much as 17% this year, according to a Reuters report.
OPEC members are considering excluding Russia from the group’s deal to gradually increase oil production after the country missed its target.
“It makes no sense to tie them to a quota,” an OPEC delegate said, according to the WSJ.
Russia is not part of the 13-member OPEC group of major oil producers, but it tops the 10 countries allied with it in the broader OPEC+. The larger group is scheduled to meet Thursday to approve a plan to increase oil production to 432,000 barrels a day. Their goal is to stabilize the global oil supply and bring it back to pre-pandemic levels.
If Russia is left out of the deal group, Saudi Arabia and the United Arab Emirates could step in to pump in more supplies. This could contribute to lower oil prices, which have risen and recently traded around two-month highs.
Here’s what analysts have to say about OPEC+, the chance of a Russian exclusion and what it could mean for the broader oil market:
Jeffrey Halley, senior market analyst at OANDA: “Realistically, only Saudi Arabia, the United Arab Emirates and perhaps Iraq can ramp up production quickly as the rest of the group cannot meet their current quotas, let alone larger reallocated ones. If Russia agreed to this course of action, it would weigh on oil prices and rebalance supply and demand, but not enough to bring Brent crude back to $100 a barrel. If this result was forced on Russia, which did not agree with it, it means a major break in the unity of OPEC+. That would be a much more bearish trajectory for oil prices. In my opinion, Russia agreed to this course or history is wrong. Any other result seems to mean that OPEC is shooting itself in the foot.”
Warren Patterson and Wenyu Yao, ING Strategists: “With a number of countries sanctioning Russian oil, it will be a challenge for Russia to ramp up production in the coming months and meet its production target under the OPEC+ deal. This potentially opens the door for other OPEC+ members to increase production more aggressively. In reality, however, given that most members have not consistently met their production targets for several months, it will likely be a struggle for the group as a whole to ramp up production more aggressively.”
Edward Bell, Senior Director of Market Economics at Emirates NBD: “Market conditions continue to cry out for additional supply, but as long as OPEC+ maintains its focus on ‘fundamentals,’ we expect oil prices to remain significantly tight, meaning high and volatile prices will persist,” S&P said Global.
Daniel McCarthy, pStrategist at Daily FX: “This could potentially pave the way for other member nations to ramp up production, which the US and Europe would welcome. Capacity for additional production from these other countries remains under a cloud.