Some members of the Organization of Petroleum Exporting Countries are talking about letting Russia out of the oil-production agreements between OPEC+ and the other countries. This was reported by the Wall Street Journal.
Such a move would have big effects on the oil supply all over the world. Russia is one of the top three crude oil producers in the world, along with Saudi Arabia and the US. However, as sanctions get tougher, Russia is finding it hard to keep up production and exports.
By taking Russia out of the monthly supply quota system, other OPEC+ members, especially Saudi Arabia and the United Arab Emirates, might be able to pump more to stop oil prices from going up. This week, a barrel of oil cost more than $120. It also comes at a time when US President Joe Biden is thinking about going to Riyadh to try to fix strained diplomatic ties.
Analysts had the following to say about the possibility of a Russian exemption and what it would mean for oil markets around the world:
SPI Asset Management
“I think there’s a good chance they’ll break up,” said Stephen Innes, managing partner at SPI Asset Management. “There seems to be some friendly table-setting before Biden’s trip to the Middle East.” “I don’t think the Persian Gulf countries could make a friendlier welcome card than bringing more barrels to market in this time of high inflation. If OPEC makes up for Russia’s drop in production, oil prices will go down even more. On the other hand, prices will keep going up if OPEC keeps making the same amount of oil even without Russia.
Helima Croft, a strategist at RBC Capital Markets LLC, said in an interview, “There’s been too much shuttle diplomacy for this to be smoke and mirrors about a US-Saudi reset.” She said that if the pact was changed, Saudi Arabia could bring barrels back earlier than planned. However, the kingdom would likely put conditions on any changes as it tries to fix its relationship with the US.
ING Groep NV
“It would make sense for Russia to be exempt, since sanctions will probably cause their output to drop in the coming months,” said Warren Patterson, head of commodities strategy at ING Groep NV. “If this makes it possible for others to increase output more aggressively, the news may hurt people’s moods. But based on the group’s performance over the last few months, I don’t think it will lead to a lot more growth in output. The Saudis and the UAE haven’t done anything to deal with the higher prices. Unless prices go up a lot, it’s unlikely that they will.
“It makes perfect sense for OPEC to do this, because if Russia cuts back on oil exports, it will be impossible for them to meet their production quotas,” said Jeffrey Halley, a senior market analyst at Oanda Asia Pacific Pte. “Swing producers like Saudi Arabia, the UAE, and maybe even Iraq will be able to increase production, which will loosen up the tight crude market around the world. That should keep Brent prices above $120 per barrel, but since the global shortage of refined products doesn’t seem to be getting better, I doubt Brent will go back below $100 per barrel.
VI Investment Corp.
Will Sungchil Yun, a senior commodities analyst at VI Investment Corp. in Seoul, said, “Now that the details of the EU’s oil embargo on Russia are set, OPEC+ needs to come up with a plan because oil prices are likely to keep going up and inflationary pressure is growing.” He said that oil prices could go as low as $100 a barrel if delegates from OPEC say that letting Russia off the hook is being talked about.