Russia signals opposition to OPEC+ oil production cuts

Russia is not advocating an oil output cut right now and OPEC+ is likely to keep output steady when it meets on Monday, people familiar with the matter said, as Moscow maneuvers to block Western efforts to curb output. its oil revenues after invading Ukraine.

Russian opposition to production cuts underscores a debate within the Organization of the Petroleum Exporting Countries and its Moscow-led allies, known collectively as OPEC+, as global oil consumers prepare for a showdown this winter with the Kremlin over the price of crude. Oil prices soared above $100 a barrel after Russia’s invasion of Ukraine, hitting Western consumers and filling Moscow’s coffers.

Saudi Arabia, the group’s biggest exporter, recently floated the idea that the alliance could consider cutting production. OPEC members such as the Republic of Congo, Sudan and Equatorial Guinea have said they are open to the idea as they are already pumping as much as they can and oil prices have fallen in recent weeks. OPEC+ production cuts often drive up prices.

But Russia worries that a production cut would signal to oil buyers that crude supply is outstripping global demand – a position that would reduce its leverage with oil-consuming countries that still buy its oil but at deep discounts, the people familiar with the matter said. Although Russia has benefited from high oil prices since the invasion of Ukraine, Moscow is more concerned about maintaining leverage in negotiations with Asian buyers who bought its crude after Europeans and the US began shunning it this year, the sources said. people.

Last week, the Group of Seven rich countries unveiled a plan to ban insuring and financing shipments of Russian oil and oil products unless they are sold below a set price ceiling. Russia has threatened to stop supplying countries participating in the price cap scheme.

According to people familiar with the matter, Russia’s objections to OPEC+ output cuts were made clear last week at an internal OPEC+ meeting where the group’s baseline scenario showed global oil supplies would be around 900,000 barrels a day day above demand this year and next year. a potentially bearish outlook for prices.

Officials from Russia and other countries said the numbers were misleading because they assumed each OPEC+ member would draw the full amount allowed under their deal, the people said. In fact, OPEC+ members have fallen about 3 million barrels per day short of those targets in recent months. The commission revised its numbers after the objections, forecasting a narrower surplus of 400,000 bpd by the end of 2022 and a deficit in 2023.

High oil prices have been beneficial for OPEC+, an alliance of oil-producing countries that controls more than half of world production. WSJ’s Shelby Holliday explains what OPEC+ countries are doing with the windfall and why they are unlikely to distance themselves from Russia. (Originally published July 7, 2022.)

“Russia may be concerned about market estimates showing a surplus,” said Helima Croft, head of commodities strategy at Canadian brokerage RBC. “It will weaken its hand with buyers, just as it negotiates to prevent them from adopting the price cap.”

OPEC+ will not decide until Monday how to proceed with oil production and a production cut cannot be ruled out, OPEC+ representatives from several countries said. But the data revision undermines the case for output cuts, they said, and representatives said there is no appetite to raise output, as the U.S. and Europe have called for.

“Most members cannot boost production, so if we had kept the quota expansion, we would have had a credibility problem,” an OPEC spokesman said. “It’s not sustainable.”

A spokeswoman for the Russian Energy Ministry did not respond to a request for comment.

Last month, OPEC+ agreed to a smaller-than-expected production increase earlier in August.

The OPEC+ meeting is being held on Monday as members worry that Iran could restore the crude it has imposed on markets if it reaches a deal with world powers to revive a nuclear pact. There are also concerns that oil demand could weaken if the world slips into recession or if China’s Covid-19 restrictions trigger another economic slowdown there.

A US official said the White House was pleased with OPEC+ production increases over the summer and noted that Saudi Arabia is climbing to a record high.

Saudi crude output rose to 10.9 million bpd on average in July-August, according to Kpler, compared with just 10.7 million bpd in June. The kingdom’s increase was the main driver behind OPEC+’s overall boost of 400,000 bpd to 43.5 million bpd over the past two months, the intelligence firm said.

Amos Hochstein, the US special presidential coordinator for the Partnership for Global Infrastructure and Investment, said he welcomed the production increases made over the summer by Saudi Arabia and OPEC.

“Current production in the United States and around the world is insufficient to address the strong economic recovery from the pandemic and the threats posed by Russia’s ongoing war against Ukraine and its use of energy as a weapon,” Mr. Hochstein.

Write to Benoit Faucon at benoit.faucon@wsj.com and Summer Said at summer.said@wsj.com

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