OPEC backs bigger output boost amid Russian isolation

Major oil producers led by Saudi Arabia and Russia on Thursday decided to open taps wider than expected amid soaring prices and hard on the heels of an EU ban on Russian oil imports.

Analysts had expected OPEC+ producers to stick to their policy modest output increases, as they have done since May 2021.

However, pressure has been rising for the 23-strong cartel to boost output and seek to stabilise prices, which have hit record highs since Russia invaded Ukraine, drawing heavy Western sanctions.

“The meeting highlighted the importance of stable and balanced markets for both crude oil and refined products,” the group said in a statement, adding that they will add 648,000 barrels per day to the market in July, up from 432,000 in previous months.

Ahead of the meeting speculation had swirled about a break in the agreement between the 13 members of the Organization of the Petroleum Exporting Countries, chaired by Saudi Arabia, and their 10 partners, led by Russia.

The Wall Street Journal reported on Monday that OPEC was considering suspending Russia from the output deal.

Oil prices sank more than 2% early Thursday on a similar Financial Times report that said Saudi Arabia was considering a plan to boost output as Russia struggles to meet targets owing to Ukraine war-linked sanctions.

OPEC+ drastically slashed output in 2020 as demand slumped when the world locked down under the coronavirus pandemic.

They have increased output modestly to the tune of around 400,000 barrels per day each month since last year, resisting pressure by top consumers, including the United States, to open the taps wider, until now.

Talks by videoconference began at the technical level around 1225 GMT coordinated by the OPEC headquarters in Vienna, before moving into a short plenary session to approve the recommendation.

Ahead of the meeting, Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said Saudi Arabia and United Arab Emirates could fill some of the gap as Russia is hit by Western oil sanctions.

“The quota system doesn’t make sense when Russia is held back from increasing its production due to the fresh European sanctions,” she said.

European Union leaders agreed on Monday to ban more than two-thirds of Russian oil imports as part of a sixth package of sanctions on Moscow over the Ukraine war.

Britain has already announced plans to phase out Russian oil imports by the end of 2022 and eventually stop importing its gas.

The United States, too, banned Russian oil and gas days after Russia’s invasion began on February 24.

“Russia has now transformed into a pariah,” Seb analyst Bjarne Schieldrop commented ahead of the meeting.

“Apparent elevated US-Saudi shuttle diplomacy lately may indicate that change in OPEC+ may be near,” he predicted.

“More oil from Saudi and the UAE will allow the West to implement sharper bans forcing Russian oil exports lower while not blowing up the oil price,” Schieldrop added.

Russia’s invasion of Ukraine has exacerbated concerns about oil supplies, sending prices to record highs this year.

As the economic screws have tightened around Russia, prices have further soared, putting pressure on the cartel to open the valves more widely and relieve the market.

Members of the G7 club of industrialised nations last week underlined OPEC+’s “key role” in the face of the tightening of international markets.

Soaring oil prices have stimulated the Gulf region’s economies, with Saudi Arabia recording its highest growth rate in 10 years over the first quarter of 2022.