Opec and its allies agreed to a modest crude output increase even as a growing international boycott of Russian oil cast doubt on Moscow’s ability to continue to meet the cartel’s targets.
The Opec+ group, which has included Russia since 2016, said on Thursday it would aim to raise production by another 432,000 barrels a day in June, continuing with the monthly plan agreed in July last year to gradually replace output cut at the start of the pandemic.
Brent, the international benchmark, was up 2.8 per cent on Thursday trading at more than $113 a barrel, a day after the European Commission proposed a phased-in ban on all imports of Russian crude and refined products into EU member states by the end of the year.
Immediately after the invasion of Ukraine, oil rallied to a 14-year-high of $139 a barrel but then pulled back as Russian oil continued to flow and new coronavirus-induced lockdowns curbed demand in China, the world’s biggest oil importer.
In a statement following the meeting the Opec+ group said it noted “the continuing effects of geopolitical factors and issues related to the ongoing pandemic” but that the outlook pointed to “a balanced market”.
Analysts said Opec+ was choosing to ignore the impact that the expanding boycott of Russian energy was expected to start to have on crude production in the country.
“The meeting is happening in a little bit of a parallel universe because they are having to pretend that Russian production isn’t about to fall off a cliff,” said Paul Horsnell, head of commodities research at Standard Chartered.
Russian oil output has already fallen from 11mn b/d in March to 10.1mn b/d over the first 19 days of April, according to the research group OilX, and is expected to fall further.
India, in particular, has significantly stepped up purchases of discounted Russian oil as western buyers have turned away. Indian imports of Moscow’s flagship Urals crude rose to 627,000 b/d in April from zero in February. China is also expected to increase its purchases of Russian oil.
But Asian buyers will struggle to absorb all of the 2.2mn b/d of crude and 1.2mn b/d of products that Russia previously shipped to Europe. As demand for Russian crude dries up, production is expected to further decline.
“You can’t just keep on month after month setting Russia a production target which it’s going to miss by 2mn or 3mn barrels a day,” Horsnell added. “At some point they will have to move into this new world where Russia is in long-term isolation in the energy trade and in that world you just can’t keep pushing on with the Opec+ schedule.”
The next Opec+ meeting is scheduled for June 2.
