Russia does not support an oil output cut now and OPEC+ is likely to hold output steady when it meets on Monday, people familiar with the matter said, as Moscow maneuvers to thwart Western attempts to limit its oil revenues after the invasion of Ukraine.
Russian opposition to production cuts highlights a debate within the Organization of the Petroleum Exporting Countries and its Moscow-led allies, known as OPEC+, as global oil consumers prepare for a showdown with the Kremlin over the price of its crude this winter. Oil prices jumped above $100 a barrel after Russia invaded Ukraine, hurting Western consumers and filling Moscow’s coffers.
Saudi Arabia, the group’s biggest exporter, recently floated the idea that the alliance might consider production cuts. OPEC members such as the Republic of Congo, Sudan and Equatorial Guinea they said they were open to the idea, as they are already pumping as much as they can and oil prices have fallen in recent weeks. OPEC+ production cuts often push prices higher.
But Russia is concerned that cutting production would signal to oil buyers that crude supply is outpacing global demand, a position that would reduce its influence over oil-consuming nations that still buy its oil but at deep discounts. say people familiar with the matter said. However Russia won Since high oil prices since the invasion of Ukraine, Moscow is more concerned about maintaining its leverage in negotiations with Asian buyers, who bought the crude after the Europeans and the United States began shunning it this year, the people said.
Last week, the Group of Seven rich nations unveiled a plan to ban the insurance and financing of supplies of Russian oil and oil products unless they are sold below a certain ceiling price. Russia has threatened to cut off supplies to countries participating in the price cap plan.
Russia’s objections to OPEC+ output cuts became clear last week at an internal OPEC+ meeting, where the group’s baseline scenario showed global oil supplies would be around 900,000 barrels a day, according to people familiar with the matter. above demand this year and next, a potentially downward price outlook.
Officials from Russia and other countries said the numbers were misleading because they assumed each OPEC+ member would pump the full amount allowed under their agreement, the people said. In fact, OPEC+ members are down about 3 million barrels per day less than those goals in the recent months. The commission revised its numbers after the objections, forecasting a smaller surplus of 400,000 bpd by the end of 2022 and a deficit in 2023.
“Russia may be concerned about market valuations pointing to a surplus,” said Helima Croft, chief commodities strategist at Canadian brokerage RBC. “It will weaken his hand with buyers just as he negotiates to dissuade them from accepting the price cap.”
OPEC+ will not decide until Monday how to continue oil production, and output cuts cannot be ruled out, OPEC+ delegates from multiple countries said. But the revision to the data undermines the case for output cuts, they said, and delegates said there was no appetite to increase production, as the US and Europe have been calling for.
“Most members cannot increase production, so if we had continued to expand quotas, we would have had 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 smaller-than-expected production increase earlier in August.
The OPEC+ meeting is being held on Monday as members worry Iran could put its sanctioned crude back on the market if it strikes a deal with global powers to revive the nuclear pact. There are also concerns that oil demand could weaken if the world goes into recession or if China’s Covid-19 restrictions caused another economic slowdown there.
A US official said the White House was pleased with OPEC+ production increases over the summer and noted that Saudi Arabia was pumping at an all-time high.
Saudi Arabia’s crude output rose to 10.9 million barrels per day on average in the July-August period, according to Kpler, compared with just under 10.7 million barrels per day in June. The increase in the kingdom was the main driver behind OPEC+’s overall increase of 400,000 bpd to 43.5 million bpd over the past two months, the data intelligence firm said.
Amos Hochstein, Special Coordinator to the President of the United States for Partnership for Global Infrastructure and Investmentsaid it welcomed production increases made over the summer by Saudi Arabia and OPEC.
“Current production in the United States and worldwide is not sufficient 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,” Mr. Hochstein said.
— Michael Amon in Dubai and Vivian Salama in Washington contributed to this article.
Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8