OPEC+ agreed on Thursday to another modest monthly oil output increase, arguing that the producer group could not be blamed for disruptions to Russian supply and saying China’s coronavirus lockdowns threatened the outlook for demand.
Ignoring calls from Western nations for accelerating output hikes, the group agreed to raise its June production target by 432,000 barrels per day, in line with an existing plan to unwind curbs made in 2020 when the COVID-19 pandemic hammered demand.
Thursday’s meeting of OPEC+, made up of the Organization of Petroleum Exporting Countries and allies including Russia, was held amid surging oil prices.
In March, crude prices hit their highest since 2008 at more than $139 a barrel after Russia’s invasion of Ukraine exacerbated supply concerns that were already fuelling a rally. Benchmark Brent crude traded above $111 on Thursday. [O/R]
The meeting also comes a day after the European Union proposed a phased embargo on Russian oil in its toughest measures yet over the war in Ukraine, which Moscow calls a “special military operation”.
Two sources present at the meeting said delegates completely avoided any discussion about sanctions on Russia, wrapping up talks in near record time of just under 15 minutes.
The oil embargo will likely force Russia to reroute flows to Asia and cut production steeply, while the EU will compete for the remaining available supply. Both factors are likely to support elevated crude prices.
“OPEC+ continues to view this as a problem of the West’s own making and not a fundamental supply issue that it should respond to,” said Callum Macpherson from Investec.
He said only Saudi Arabia and the United Arab Emirates had capacity to lift supply significantly, adding: “If they were to do so, the ensuing falling out with Russia could bring an end to OPEC+.”
OPEC Secretary General Mohammad Barkindo said on Wednesday it was not possible for other producers to replace Russian exports of more than 7 million bpd. “The spare capacity just does not exist,” he said.
The United States has repeatedly asked OPEC to raise production, but the Saudi-led organisation has resisted the calls amid strained relations with Washington.
The West’s energy watchdog, the International Energy Agency, agreed last month to release record volumes of oil stocks to help to cool prices and offset supply disruptions from Russia.