(Bloomberg) — Exempting Russia from the OPEC+ alliance’s oil-production agreements is being discussed by some members of the Organization of Petroleum Exporting Countries, the Wall Street Journal reported.
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Such a move would have major ramifications for global oil supply. Russia is one of the world’s top three crude producers — along with Saudi Arabia and the US — but it’s struggling to maintain output and exports in the face of increasing sanctions.
By removing Russia from the monthly supply quota system, it could give other OPEC+ members, particularly the Saudis and United Arab Emirates, scope to pump more to stem surging oil prices that topped $120 a barrel this week. It also comes as US President Joe Biden mulls a visit to Riyadh to try and repair frayed diplomatic relations.
Here’s what analysts had to say about the possibility of a Russian exemption and the impact on global oil markets:
SPI Asset Management
“I think there’s a good chance (for a break up), as there appears to be some friendly table-setting ahead of Biden’s visit to the Middle East,” said Stephen Innes, managing partner at SPI Asset Management. “I don’t think the Persian Gulf members could open up a more friendlier welcome card that would include bringing more barrels to market in these hyper-inflationary times. If OPEC makes up for Russia’s shortfall, then oil prices will drop further, whereas prices will continue its increase if OPEC holds onto their current production levels even without Russia.”
“There’s been too much shuttle diplomacy for this to be smoke and mirrors about a US-Saudi reset,” Helima Croft, a strategist at RBC Capital Markets LLC, said in an interview. A change to the pact would allow Saudi Arabia to bring back barrels earlier than scheduled, and the kingdom would likely attach conditions to any changes as it seeks to rehabilitate its partnership with the US, she said.
ING Groep NV
“It would make sense that Russia receives an exemption, given their output will likely fall in the months ahead due to sanctions,” said Warren Patterson, head of commodities strategy at ING Groep NV. “If this opens the door for others to potentially increase output more aggressively, the headlines may weigh on sentiment. But I struggle to see it resulting in significantly more output growth, given the performance we have seen from the group over the last several months. The Saudis and the UAE haven’t responded to the higher-price environment. They probably won’t, unless we see significantly higher prices.”
“It makes complete sense for OPEC to do this, as with Russian oil exports curbed the production quotas become impossible to meet,” said Jeffrey Halley, a senior market analyst at Oanda Asia Pacific Pte. “This will allow swing producers like Saudi Arabia, the UAE, and possibly Iraq, to ramp up production, easing the tight crude market globally. That should cap prices in Brent above $120 a barrel, although with the supply squeeze on refined products globally showing no signs of easing, I doubt we’ll see Brent back below $100 a barrel.”
VI Investment Corp.
“With the details of the EU’s Russian oil embargo in place, there’s also a need for OPEC+ to come up with a plan as oil prices are likely to keep surging and inflationary pressure is mounting,” said Will Sungchil Yun, a senior commodities analyst at VI Investment Corp. in Seoul. If there’s any confirmation from OPEC delegates that exempting Russia is being discussed, oil prices could fall to as low as $100 a barrel, he said.
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