OPEC Plans Substitutes for Russian Oil Output Quota Increases

Victor Golovtchenko 01/06/2022
OPEC Plans Substitutes for Russian Oil Output Quota Increases OPEC Plans Substitutes for Russian Oil Output Quota Increases
OPEC Plans Substitutes for Russian Oil Output Quota Increases
The final day of May was one of the most volatile for oil markets this spring. In the aftermath of the EU’s decision to impose an embargo on Russian crude shipped by sea, prices skyrocketed to almost hit $120 per barrel, stopping short just a few cents from the figure. As the U.S. trading session started, profit taking ensued and news about OPEC discussing whether to suspend Russian crude from the oil-production deal weighed on prices.

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WTI Oil quickly dropped 5 figures, closing the session around $114.67. With a looming OPEC meeting on Thursday, oil prices could continue to fluctuate wildly as most oil-producing nations lack the capacity to pump out more oil. Will Saudi Arabia and the UAE pick up the slump in Russian production which is expected to drop 8% this year? This could have a dramatic impact on oil markets which have been the top-performing asset over the past several months.
 

Why it matters?

 
During the Covid-19 pandemic as demand for oil slumped, a meeting between most major oil-producing nations formed the OPEC+ deal – an agreement that regulated the planned gradual increase in oil production as the post-covid slump in demand subsided. Every month after the OPEC/OPEC+ meeting a planned increase to the production quotas of 400,000 bpd is enacted, and proportionately distributed between oil-producing nations. Since Russia isn’t able to meet its production quota over recent months, the meeting on Thursday could result in this amount being split between other member-states that have spare capacity.
 

What we’re watching?

 
The key driving factors coming up are the discussions at the OPEC meeting this Thursday. A WSJ report signaled yesterday that discussions about the exclusion of Russia from planned increases of oil production is underway. If other OPEC members pick up the slack, we could see a temporary relief for oil prices which have been relentlessly rising since the start of the year.
 

What we’re hearing?

 
OPEC has reduced its estimate for oil a global oil surplus by 0.5 million barrels per day. With a lower surplus, prices for the commodity have maintained above-trend levels for a protracted period. Meanwhile Russia claims that the European oil sanctions against it could impact the while global energy market.
 
Take advantage of oil market volatility and take a view on the direction of the oil markets using WTI or BRENT crude oil CFDs. If OPEC producers decide to suspend the quotas for Russian oil, Saudi Arabia and the UAE are the only two countries that have enough spare capacity to pump out more of it. Will this lead to a material and more protracted correction in oil prices or not?
 

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