Oil prices fall on possibility that OPEC will compensate for Russian production losses

LONDON (Reuters) – Oil prices fell on Thursday on speculation that Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries may boost crude production to offset lower Russian production.

Brent crude fell $2.82, or 2.4 percent, to $113.47 a barrel at 1035 GMT, after rising 0.6 percent the previous day.

US West Texas Intermediate crude fell $2.81, or 2.4 percent, to $112.45 a barrel, after rising 0.5 percent on Wednesday.

Benchmarks have climbed higher for several weeks as Russian exports have been dented by US and European Union sanctions against Moscow over its invasion of Ukraine, a measure Moscow describes as a “special operation”. Read more

The market also saw support from China’s gradual exit from strict COVID-19 lockdowns.

But oil prices fell on Thursday ahead of a meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, in what is known as OPEC+, during which the organization will decide oil production policy in July.

Two sources from OPEC+ said Thursday that Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries may boost oil production to offset lower Russian production.

Russian production fell by about 1 million barrels per day, due to the sanctions.

One of the OPEC+ sources familiar with the Russian situation said that Moscow may agree to increase production by other producers to make up for its reduced production, but not necessarily to make up for all the shortfall.

The Kremlin asserts that it can alter the route of oil exports to reduce losses from EU sanctions, but analysts remain skeptical. Read more

Carsten Fritsch, an analyst at Commerzbank, who also questioned the ability of OPEC+ to add more oil to the market, said:

Most recently, on Wednesday, sources expected OPEC+ to stick to its modest monthly increases in oil production, despite seeing tighter global markets. Read more

Two sources from OPEC + said that an OPEC + technical committee cut its forecast for the oil market surplus in 2022 by 500,000 barrels per day to 1.4 million barrels per day.

The Wall Street Journal reported on Tuesday that some OPEC members are considering suspending Russia’s participation in the agreed production plan, to allow other producers to pump significantly more crude, as the United States and European countries are seeking.

But two OPEC+ sources told Reuters that a technical meeting on Wednesday did not discuss the idea. Six other OPEC+ delegates said the idea had not been discussed by the group. Read more

Additional reporting by Yuka Obayashi in Tokyo; Editing by Jason Neely

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