By Barani Krishnan
Investing.com — Crude prices returned to positive territory on Wednesday as OPEC delegates did not discuss the possibility of Russia being excluded from a global oil production pact as speculated, due to Moscow’s increasing woes from Western sanctions.
The Wall Street Journal reported on Tuesday that some OPEC members were exploring the idea of suspending Russia’s participation in the alliance’s oil-production deal as Western sanctions and a partial European ban begin to undercut Moscow’s ability to pump more.
“Exempting Russia from its oil-production targets could potentially pave the way for Saudi Arabia, the United Arab Emirates and other producers in the Organization of the Petroleum Exporting Countries to pump significantly more crude, something that the U.S. and European nations have pressed them to do as the invasion of Ukraine sent oil prices soaring above $100 a barrel,” the Journal reported, citing OPEC sources familiar with the move.
That speculation did not gain ground on Wednesday among delegates preparing for the monthly meeting of the oil exporters alliance to be held on Thursday.
If anything, non-OPEC member Russia closed ranks with UAE and other members of the oil exporters cartel, citing a collaboration that helped restore oil market stability in crunch times.
“[The] heads of Russian, UAE foreign ministries have noted [the] close cooperation of the two countries at OPEC+ in [the] interests of stabilization and predictability of global energy prices,” the Foreign Ministry in Kremlin said in a statement issued Wednesday.
Russia and nine other non-OPEC oil producers have banded with the original 13 members of the Saudi-led OPEC under a broader alliance called OPEC+ to coordinate their crude exports.
For more than a year now, OPEC+ has ensured that the countries in the alliance provided less crude than needed by the market in order to maintain optimum prices for a barrel — despite repeated pleas for more oil from major consuming countries such as China, the United States and India.
News of that status quo being maintained helped oil prices recover after a near 2% drop on Tuesday, stirred by the Journal report. Oil prices have already been on a fairly high trajectory since last week as the European Union closed in an agreement — finally ratified in most parts Monday — to ban Russian oil imports.
In Wednesday’s trade, London-traded Brent, the global benchmark for crude, settled up 69 cents, or 0.6%, at $116.29 for a barrel meant for August delivery. .
New York-traded West Texas Intermediate, the benchmark for US crude, settled up 59 cents, or 0.5%, at $115.26 on its July delivery contract.
Both crude benchmarks rose a lot more earlier in the day, with Brent reaching a session high of $120.80 and WTI $117.86.
They gave back much of those gains after the European Union also looked set to impose its toughest sanctions yet on Russia, banning imports of its oil and blocking insurers from covering its cargoes of crude. The extended sanctions are part of the West’s growing agenda to deprive Moscow of the cash it needs to fund the war on Ukraine and keep its economy functioning.
“This basically means that anyone who buys Russian oil under the prevailing sanctions will be buying them naked, because no insurer will be backing those cargoes,” said John Kilduff, founding partner at New York energy hedge fund Again Capital. “It’s one thing to get sanctioned Russian oil on the cheap, but it’s another not to get it all and lose your money too.”
Aside from the forthcoming OPEC meeting, market participants were on the lookout on Wednesday for U.S. weekly oil inventory data, due after market settlement from the API, or the American Petroleum Institute.
The API will release at approximately 4:30 PM ET (20:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended May 27. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Thursday.
For last week, analysts tracked by Investing.com expect the EIA to report a crude stockpile drop of 1.35 million barrels, versus the 1.02-million barrel reduction reported during the week to May 20.
On the gasoline inventory front, the consensus is for a build of 533,000 barrels over the 482,000-barrel decline in the previous week.
With distillate stockpiles, the expectation is for a climb of 990,000 barrels versus the prior week’s gain of 1.66 million barrels.