OPEC+ is expected to leave the current output agreement unchanged at its next meeting, but behind the scenes, the oil giants may be planning to be ready to respond if one day Russia’s output is severely reduced. .
The blow hit Russia

Earlier this week, European Union (EU) leaders agreed to embargo most of Russia’s crude oil and other petroleum products, with only temporary exemptions for oil transported by pipeline.

The move by EU countries, along with new sanctions on the marine insurance sector, could prevent Russia from exporting crude oil to the world market,  CNBC quoting analysts said.

Daniel Yergin, vice president of S&P Global, said: “If the West stops providing insurance services to Russian tankers, that will really exacerbate the supply shortage and certainly It’s going to be a tumultuous summer.”

“Without marine insurance, most oil tankers would not accept to go to sea because the risk is very great,” emphasized S&P Global Vice President.

Most insurance for tankers is provided by insurance companies based in London. “Insurances don’t get as much attention as crude oil lots, but they’re important,” Yergin said.

The prospect of a loss of millions of barrels of Russian oil, as well as the possibility of prices swinging wildly and higher, is dogged by members of the OPEC+ oil alliance. Recently, the West has repeatedly asked OPEC + to pump more oil into the market.

In the future, OPEC + countries will certainly have to increase production, due to a decrease in Russian supply. However, that is unlikely to happen at the OPEC + meeting today (June 2).

“I don’t think the OPEC leadership will want to embarrass Russia right now,” said Helima Croft, head of commodity strategy at RBC. They will find a way to slowly thread the needle through the thread.”

According to Ms. Croft, the current OPEC + production agreement has only four more months to go, and by the end of today’s meeting, the oil alliance is expected to pump about 432,000 barrels of oil into the market every day.

The RBC expert noted, even if OPEC + adjusts the agreement sooner, it is not clear how much the market will be soothed, because the spare capacity of the member countries is very limited and the war in Ukraine has not come to an end.

However, Ms. Croft said there was a chance that Saudi Arabia would “cancel” the deal before the official deadline as part of “bargaining” with the administration of President Joe Biden.

Relations between oil giant Saudi Arabia and the White House have deteriorated in recent years. Some experts predict Biden will probably visit Riyadh and meet Crown Prince Mohammed bin Salman when he visits Israel at the end of June.

Europe makes it difficult for OPEC+

By some estimates, previous sanctions have affected about 50% of Russia’s oil exports, and new sanctions could be painful for the country of Aries, making the world’s oil supply tight. narrow. Analysts believe that WTI oil prices could retest their March peak of $130.50 a barrel.

According to some other observers, the EU’s decision to block insurance companies from providing services to Russian oil tankers is a step that no one expected. The move could hurt Russia’s efforts to sell oil to India and China.

“That combined with the reopening of China only adds to the pressure on supply. Sanctions, no marine insurance and China’s recovery have squeezed markets and countries have struggled to compete for crude oil,” Yergin said.

In another interview with  CNBC, John Kilduff, senior partner at Again Capital, said that Russian crude oil may have limited market access but cannot be completely eliminated.

“We are in a very difficult situation, but the reality is not so ominous. Russia can circumvent sanctions, as Iran did. India and China will continue to buy oil. Cargo ships will transship oil in the middle of the night at sea…”, Mr. Kilduff explained.

Mr. Kilduff said that WTI oil prices cannot return to their March peak, as China is an unpredictable factor and the country’s demand may not be as high as expected when it reopens its economy. Not to mention, OPEC forecasts a supply surplus of 1.5 million bpd this year.

The Wall Street Journal reported that some OPEC members are preventing Russia from joining the output agreement, because sanctions affect Russia’s oil production capacity. However, analysts do not believe OPEC+ will send any signal at this week’s meeting.

“I think OPEC+ is also trying to separate politics from economics. And economics shows that, if oil prices continue to rise, demand will take a big hit,” said Franciso Blanch, head of commodity and derivatives strategy at Bank of America.

“We have seen record diesel prices, record gasoline prices and now waiting for more crude oil prices to peak,” the expert added.

But, Mr. Blanch said OPEC+ will eventually have to draw up a new production plan that doesn’t depend on Russian crude. Saudi Arabia is the only country capable of producing and exporting more oil to the market.

“What OPEC+ is thinking about is how to prevent a shortage of crude oil without backfire on the alliance. I think OPEC+ is concerned that if they don’t do something, it’s very likely they will suffer. The key question is how Russia will respond to the OPEC+ plan,” Blanch said.

On the other hand, some experts fear that Russia may respond and cut off European crude oil supplies sooner than expected. “What we need to watch is whether Russia is weaponizing its energy,” said RBC’s Helima Croft. If so, oil prices could spike, even to $185/barrel.”

As one of the top three producers in the world, Russia exported about 5 million barrels of crude oil and 2.5 million barrels of other refined products a day before the war in Ukraine broke out. OPEC+ cannot make up for all those losses.

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