Russia Signals Opposition To OPEC+ Oil Production Cut

Russia is not currently backing an oil production cut and it is likely that OPEC+ will keep its production steady on Monday, people familiar with the matter said, while Moscow maneuvers to thwart Western attempts to limit its oil revenues following its invasion of Ukraine .

Russian opposition to a production cut underscores a debate within the Organization of Petroleum Exporting Countries and Moscow-led allies, collectively known as OPEC+, as oil consumers worldwide brace for a showdown with the Kremlin this winter over the price of its crude. Oil prices soared above $100 a barrel after Russia invaded Ukraine, hurting Western consumers and filling Moscow’s coffers.

Saudi Arabia, the group’s largest exporter, recently brought up the idea that the alliance might consider reducing production. OPEC members including the Republic of Congo, Sudan and Equatorial Guinea have said they are open to the idea as they are already pumping as much as they can and oil prices have fallen in recent weeks. A cut in OPEC+ production often raises prices.

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But Russia is concerned that a production cut would signal to oil buyers that crude supply is outstripping global demand – a position that would reduce its hold on oil-consuming nations, which still buy its petroleum but at large discounts familiar with the matter people said. Though Russia has benefited from high oil prices since invading Ukraine, Moscow is more concerned about maintaining leverage in negotiations with Asian buyers who have bought its crude after Europeans and the US began shunning it this year, said the people.

Last week, the Group of Wealthy Nations Seven unveiled a plan to ban insurance and financing of shipments of Russian oil and petroleum products unless they are sold below a set price cap. Russia has threatened to stop supplying countries participating in the price cap plan.

According to people familiar with the matter, Russia’s objections to an OPEC+ production cut were made clear at an internal OPEC+ meeting last week, where the group’s baseline scenario showed global oil reserves reaching about 900,000 barrels of oil per year this year and next day would be above demand. a potentially bearish forecast for prices.

Officials from Russia and other countries said the numbers were misleading because they assumed each OPEC+ member would pump the full amount allowed under its agreement, the people said. In fact, OPEC+ members have fallen about 3 million barrels per day short of those targets over the past few months. The commission revised its figures after the objections, forecasting a smaller surplus of 400,000 barrels a day by the end of 2022 and a deficit in 2023.

High oil prices have been beneficial for OPEC+, an alliance of oil-producing countries that control more than half of world production. WSJ’s Shelby Holliday explains what OPEC+ countries are doing with the windfall and why they’re unlikely to distance themselves from Russia. (Originally published July 7, 2022.)

“Russia may be concerned about market assessments pointing to surplus,” said Helima Croft, chief commodities strategist at Canadian brokerage RBC. “It would weaken its hand with buyers as it negotiates to discourage them from accepting the price cap.”

OPEC+ will only decide on Monday how to proceed with oil production and a production cut cannot be ruled out, said OPEC+ delegates from several countries. But the revision of the data undermines the case for a production cut, they said, and delegates said there was no appetite for production increases as demanded by the US and Europe.

“Most members cannot increase production. So if we kept increasing quotas, we would have a credibility problem,” said an OPEC delegate. “It’s not sustainable.”

A spokeswoman for Russia’s Energy Ministry did not respond to a request for comment.

Last month, OPEC+ agreed to a lower-than-expected production increase in early August.

The OPEC+ meeting comes on Monday as members fear Iran could put its sanctioned crude back on the markets if it strikes a deal with world powers to revive a nuclear pact. There are also concerns that oil demand could weaken if the world enters a recession or if China’s Covid-19 restrictions trigger a further economic slowdown there.

A US official said the White House was pleased with OPEC+ production increases over the summer, noting that Saudi Arabia is pumping at an all-time high.

Saudi Arabia’s crude oil production rose to an average of 10.9 million barrels per day in July-August, according to Kpler, compared to just under 10.7 million barrels per day in June. The kingdom’s surge was the main reason for an overall surge in OPEC+ from 400,000 barrels per day to 43.5 million barrels per day over the past two months, the data intelligence firm said.

Amos Hochstein, the US president’s special coordinator for global infrastructure and energy security, said he welcomed the production increases implemented by Saudi Arabia and OPEC over the summer.

“Current production in the United States and around the world is insufficient to meet the strong economic recovery from the pandemic and the threats posed by Russia’s ongoing war against Ukraine and its use of energy as a weapon,” Hochstein said.

—Michael Amon in Dubai and Vivian Salama in Washington contributed to this article.

write to Benoit Faucon at [email protected] and Summer Said at [email protected]

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