OPEC+ sticks to modest production increase despite Russian production doubts

OPEC and its allies agreed to a modest increase in crude output even as a growing international boycott of Russian oil cast doubt on Moscow’s ability to continue to meet cartel goals.

The OPEC+ group, which has included Russia since 2016, said on Thursday it would aim to increase production by an additional 432,000 barrels per day in June, continuing the monthly plan agreed in July last year to gradually replace cut production. at the start of the pandemic. .

Brent crude, the international benchmark, rose 2.8% on Thursday, trading at more than $113 a barrel, a day after the European Commission proposed a phased ban on all imports of Russian crude and refined products into EU Member States by the end of the year.

Immediately after the invasion of Ukraine, oil hit a 14-year high of $139 a barrel, but then fell as Russian oil continued to sink and new coronavirus-induced lockdowns dampened demand. in China, the world’s largest oil importer.

In a statement after the meeting, the OPEC+ group said it noted “the lingering effects of geopolitical factors and issues related to the ongoing pandemic” but that the outlook indicated “a balanced market”.

Analysts said OPEC+ is choosing to ignore the impact Russia’s growing energy boycott is expected to start having on crude production in the country.

“The meeting is a bit of a parallel universe as they have to pretend that Russian production is not about to fall off a cliff,” said Paul Horsnell, head of commodities research at Standard Chartered. .

Russian oil production has already fallen from 11 million b/d in March to 10.1 million b/d in the first 19 days of April, according to research group OilX, and is expected to fall further.

India, in particular, has dramatically increased its purchases of discounted Russian oil as Western buyers have turned away. Indian imports of Moscow’s flagship crude oil, the Urals, rose from zero in February to 627,000 bpd in April. China is also expected to increase its purchases of Russian oil.

But Asian buyers will struggle to absorb all of the 2.2 million b/d of crude and 1.2 million b/d of products that Russia previously shipped to Europe. As demand for Russian crude dries up, production is expected to decline further.

“You can’t go on month after month setting Russia a production target that they’re going to miss by 2 or 3 million barrels a day,” Horsnell added. “At some point they will have to enter this new world where Russia is isolated for the long term in the energy trade and in this world you simply cannot continue to meet the OPEC+ schedule. »

The next OPEC+ meeting is scheduled for June 2.

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