The Wall Street Journal reported Tuesday that some members of the oil exporters’ cartel were exploring the idea of suspending the OPEC+ supply agreement with Russia. This would allow countries such as Saudi Arabia and the United Arab Emirates to step in and ease a supply crunch that pushed global crude prices above $120 a barrel this week.
Saudi Arabia, OPEC’s de-facto leader, had indicated to Western allies that it was prepared to raise its oil production if Russian output fell substantially as a consequence of the sanctions imposed over the invasion of Ukraine in February, the Financial Times reported. An agreement could come as early as Thursday at a meeting of OPEC and Russian energy ministers, according to Reuters.
Saudi Arabia had previously dismissed US requests to increase production beyond a long standing quota agreed with Russia and other non-OPEC producers. But concerns that sky-high prices could tip the world into recession appear to be prompting a rethink.
Brent crude, the global benchmark for oil, hit $125 a barrel on Tuesday, its highest level since early March. US WTI oil almost reached $120 per barrel. Both have since dropped back in response to the media reports, with Brent dipping another 2.3% below $114 and WTI down 1.9% at $113 by 5 am ET.
“[The] OPEC+ meeting later today could be a pivotal one if Russia is given an exemption from its production quotas, which would allow the two main swing producers, Saudi Arabia, and the UAE, to ramp up exports to fill the gap,” noted Jeffrey Halley, senior market analyst for the Asia-Pacific region at Oanda.
“None of that will alleviate the refining bottleneck/crunch that is causing petrol and diesel prices to soar globally, but it would be a rare piece of good news for the global economy and the inflation fight,” he added.
Russia’s invasion of Ukraine prompted Western powers to ban imports of Russian crude and refined products. The European Union earlier this week agreed to ban 90% of Russian oil by the end of this year.
At the same time, Russia has started to choke off exports of natural gas to some EU countries — adding to the energy supply crunch that has helped send US and European inflation to its highest level in the decades and prices for gasoline and diesel to all-time highs.
Reuters, citing two OPEC+ sources, reported Thursday that Russian oil production had fallen by about 1 million barrels per day in recent months as result of Western sanctions.