OPEC Weighs Suspending Russia From Oil-Production Deal

Some OPEC members are exploring the idea of ​​suspending Russia’s participation in an oil production deal as Western sanctions and a partial European ban begin to erode Moscow’s ability to pump more, OPEC delegates said.

Liberating Russia from its oil production goals could potentially pave the way for Saudi Arabia, the United Arab Emirates and other producers in the Organization of Petroleum Exporting Countries to produce significantly more crude, which the US and European nations have been urging them to do as Ukraine’s invasion did Oil prices topped $100 a barrel.

Russia, one of the world’s top three oil producers, agreed last year with OPEC and nine non-OPEC nations to produce more crude each month, but its production is now expected to fall by about 8% this year. It could not be determined whether Russia would agree to an exception to the agreement’s production targets.

So far, there has been no formal pressure for OPEC to pump more oil to make up for possible Russian deficits, but some Persian Gulf members have begun planning an increase in production sometime in the next few months, delegates said.

The 13 members of OPEC and 10 non-OPEC producers led by Russia will meet on Thursday when they are expected to approve a planned increase of 432,000 barrels per day – part of a series of phased monthly increases aimed at boosting production to return to pre-pandemic levels. Collectively, the OPEC and non-OPEC producers refer to themselves as OPEC+.

The US and European nations have said the deal is insufficient to stabilize an oil market during Russia’s invasion of Ukraine, but OPEC+ has refused, sticking to a Moscow-blessed plan.

A spokeswoman for Russia’s Energy Ministry said she would not comment until Thursday’s OPEC+ meeting.

Although Russia is not a member of OPEC, since 2016 it has coordinated oil production with the group in a coalition that controls more than half of the world’s crude oil production and gives Moscow control of the oil market. The pact is referred to among members as the Declaration of Cooperation, or DoC.

Now OPEC members, including the core group of the Persian Gulf producers’ cartel, have started a debate over whether Moscow may need to stop participating in the group’s planned increases, delegates say. Russia’s production has been falling since President Vladimir Putin launched the Ukraine invasion and is likely to fall further, according to Russia’s own forecasts.

“We all agreed that at the moment Russia is technically out of effective participation in the DoC,” said an OPEC delegate.

European Union leaders have taken a major step in the economic fight against Moscow over its invasion of Ukraine by agreeing to block 90% of Russian oil imports by the end of the year. The embargo met opposition from countries heavily dependent on Russian crude oil, particularly Hungary. Photo: Olivier Matthys/Associated Press

OPEC delegates said they started talking about a waiver for Russia before the European Union agreed to ban Russian crude purchases with some exceptions and block insurers from covering their crude. However, the ban has accelerated discussion of how to deal with Russia’s lagging production.

OPEC has historically waived production demands from pressured members, including Iraq when it was under sanctions in the 1990s. Libya, Venezuela and Iran all currently have exemptions from any obligation to meet OPEC targets.

Russia has missed its production target, known within OPEC as a quota, for several months.

“It makes no sense to tie them to a quota,” said an OPEC delegate.

Whatever OPEC does, it will likely try to keep Moscow as an ally and look forward to a day when its production could return. Even with reduced output, Russia pumps more than any other country except the US and Saudi Arabia.

“Russia brings us considerable power as an interest group,” said an OPEC official in the Persian Gulf.

Still, some members fear that exempting Russia from its targets will undermine cohesion in OPEC+. Russia would retain power in the group without having to participate in increasing or cutting production.

“What is the concept of OPEC+ without Russia,” said an OPEC delegate.

If the group decides to cut production going forward — which is always a difficult decision, as it requires members to forego revenue — Russia could more easily say no.

“The danger of taking Russia off the quota is that if we are forced to make cuts in the future, Russia will resist,” the Persian Gulf OPEC official said.

In recent weeks, Moscow officials at OPEC+ internal meetings on the technical aspect of the oil market have urged the group to downgrade its oil demand forecast amid rising prices, OPEC delegates said. If OPEC sees slowing demand, it would make it harder for the group to ramp up production, delegates said.

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

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https://www.wsj.com/articles/opec-weighs-suspending-russia-from-oil-production-deal-11654019943 OPEC Weighs Suspending Russia From Oil-Production Deal

Alley Einstein

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