OPEC+ sticks to modest increase in oil production despite rising prices

  • OPEC+ to increase production by 432,000 bpd from June
  • OPEC says Chinese lockdowns are hitting demand
  • No discussion on EU embargo on Russian oil

LONDON, May 5 (Reuters) – OPEC+ agreed to a further modest increase in monthly oil production on Thursday, arguing the producer group could not be blamed for Russian supply disruptions and saying blockages in the coronavirus in China were threatening the demand outlook.

Ignoring calls from Western countries to accelerate production increases, the group agreed to raise its June production target by 432,000 barrels per day, in line with an existing plan to lift restrictions made in 2020 when the COVID pandemic -19 hammered the request.

Thursday’s meeting of OPEC+, made up of the Organization of the Petroleum Exporting Countries and its allies, including Russia, came amid soaring oil prices.

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In March, crude prices rose to their highest level since 2008 at over $139 a barrel after Russia’s invasion of Ukraine exacerbated supply issues that were already fueling a recovery. Benchmark Brent crude traded above $111 on Thursday.

The meeting also comes a day after the European Union proposed a phased embargo on Russian oil in its toughest measures yet over the war in Ukraine, which Moscow calls a “special military operation”. Read more

Two sources at the meeting said delegates avoided any discussion of sanctions against Russia altogether, concluding the talks in a near-record time of just under 15 minutes.

The oil embargo will likely force Russia to redirect flows to Asia and drastically cut production, while the EU will compete for the remaining available supply. Both of these factors are likely to support high crude prices.

“OPEC+ continues to view this as a Western-specific manufacturing issue and not a fundamental supply issue that it should address,” Investec’s Callum Macpherson said.

He said only Saudi Arabia and the United Arab Emirates had the capacity to increase supply significantly, adding: “If they did, the ensuing estrangement with Russia could end the war. ‘OPEC+’.

OPEC Secretary General Mohammad Barkindo said Wednesday that it was not possible for other producers to replace Russian exports of more than 7 million bpd. “The spare capacity just doesn’t exist,” he said.

The United States has repeatedly called on OPEC to increase production, but the Saudi-led organization has resisted calls amid strained relations with Washington.

The West’s energy watchdog, the International Energy Agency, agreed last month to release record volumes of oil stocks to help cool prices and offset supply disruptions of Russia.

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Reporting by Ahmad Ghaddar, Alex Lawler, Maha El Dahan and Rowena Edwards; Written by Dmitry Zhdannikov; Editing by David Goodman and Edmund Blair

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