Opec+ is poised to agree another increase in its production target when ministers meet on 2 June, but the group's efforts to boost output face growing headwinds following the EU's deal to phase out Russian seaborne crude imports.
The coalition is set to rubberstamp a 432,000 b/d rise in its July target, in line with a roadmap sketched out last year, delegates told Argus. A bigger quota increase is unlikely, given the constraints on both upstream and downstream capacity and the slow pace at which Chinese demand is recovering from the latest wave of Covid-19.
Recently Opec+ has fallen way short of its output targets anyway, with average compliance among deal participants shooting up to 220pc in April from 129pc in January, according to an internal Opec document. The group's struggle to meet its collective production quota in recent months has been driven by Russian shortfalls, with Argus estimating that Moscow was over 1.3mn b/d shy of its April target.
Russian oil output ticked slightly higher on 1-29 May, according to data from state news agency Tass, but it remained well below target. This week's announcement of a partial EU embargo on Russian oil imports — which includes phasing out seaborne crude deliveries to the region within six months — will make it harder still for Moscow to meet its output commitments, casting a shadow over the country's status in the Opec+ alliance.
Opec+ delegates want more time to monitor how Russia fares, with one stressing the need to assess Moscow's ability to divert its EU supplies elsewhere. India has already sharply raised its Russian crude intake since the invasion of Ukraine, and all eyes are now on China to see whether Beijing will step in as Covid lockdowns ease and oil demand recovers.
High Opec+ compliance figures are stoking calls from consumer countries for the group to accelerate the pace at which it unwinds its remaining production cuts. Granting Russia a quota exemption — as Opec+ did for war-torn Libya and fellow sanctions-hit Iran and Venezuela — would help bring those compliance rates closer to 100pc, but delegates say this has yet to be formally proposed. One source said Moscow is unlikely to accept a quota exemption. Throughout the current Opec+ agreement, Russia has insisted on equal terms with de facto Opec leader Saudi Arabia, consistently adopting the same production targets and baseline levels.
Bridging the gap
Opec+ ministers may need to hold a discussion at some point about how to bridge the gap between pledged targets and actual output, although for the time being their hands are tied by dwindling spare capacity, delegates say. Energy watchdog the IEA estimated in its latest Oil Market Report that the Opec+ coalition — including Iran, Venezuela and Libya — has just over 6.9mn b/d of spare crude capacity left.
Saudi oil minister Abdulaziz bin Salman also recently flagged the issue of insufficient refining capacity to meet demand.
