A crude-oil terminal on the shore of Nakhodka Bay, in Russia’s far east.
Photo: TATIANA MEEL/REUTERS
Russia doesn’t support an oil-production cut at this time, and it is likely OPEC+ will keep its output steady when it meets Monday, people familiar with the matter said, as Moscow maneuvers to thwart Western attempts to limit its oil revenue following its invasion of Ukraine.
Russian opposition to a production cut highlights a debate within the Organization of the Petroleum Exporting Countries and Moscow-led allies, collectively known as OPEC+, as oil consumers globally brace for a showdown this winter with the Kremlin over the price of its crude. Oil prices soared above $100 a barrel after Russia invaded Ukraine, hurting Western consumers and filling Moscow’s coffers.
Saudi Arabia, the group’s biggest exporter, floated the idea recently that the alliance could consider reducing output. OPEC members such as the Republic of Congo, Sudan and Equatorial Guinea have said they are open to the idea, as they are already pumping as much as they can and oil prices have fallen in recent weeks. An OPEC+ production cut often lifts prices.
But Russia is concerned that a production cut would signal to oil buyers that crude supply is outstripping global demand—a position that would reduce its leverage with oil-consuming nations that are still buying its petroleum but at big discounts, the people familiar with the matter said. Though Russia has benefited from high oil prices since the Ukraine invasion, Moscow is more concerned about maintaining influence in negotiations with Asian buyers who bought its crude after Europeans and the U.S. began shunning it this year, the people said.
Last week, the Group of Seven wealthy nations rolled out a plan to ban the insurance and financing of shipments of Russian oil and petroleum products unless they are sold under a set price cap. Russia has threatened to stop supplying countries that participate in the price-cap plan.
According to the people familiar with the matter, Russia’s objections to an OPEC+ production cut became clear last week at an internal OPEC+ meeting where the group’s baseline scenario showed the world’s oil supplies would be about 900,000 barrels oil a day above demand this year and next, a potentially bearish projection for prices.
Officials from Russia and other countries said the numbers were misleading because they assumed that each OPEC+ member would pump the full amount allowed under their agreement, the people said. In fact, OPEC+ members have fallen about 3 million barrels a day short of those targets in recent months. The commission revised its numbers after the objections, predicting a smaller surplus of 400,000 barrels a day by the end of 2022 and a deficit in 2023.
“Russia may be concerned about market assessments that point to a surplus,” said
chief commodities strategist at Canadian broker RBC. “It would weaken its hand with buyers just as it negotiates to deter them from adopting the price cap.”
OPEC+ won’t decide until Monday how to proceed with oil production, and an output cut can’t be ruled out, said OPEC+ delegates from multiple countries. But the revision in data undermines the case for a production cut, they said, and delegates said there was no appetite for raising output, as the U.S. and Europe have called for.
“Most members can’t boost production so if we had kept widening quotas, we would have a credibility problem,” said an OPEC delegate. “It’s not sustainable.”
A spokeswoman for the Russian Energy Ministry didn’t respond to a request for comment.
Last month, OPEC+ agreed to a smaller-than-expected production increase earlier in August.
The OPEC+ meeting takes places Monday as members are concerned Iran could bring its sanctioned crude back to markets if it strikes an agreement with global powers to revive a nuclear pact. There are also worries that oil demand could weaken if the world enters a recession or if China’s Covid-19 restrictions spur another economic slowdown there.
A U.S. official said the White House was pleased with the OPEC+ production increases over the summer and noted that Saudi Arabia is pumping at a historic high.
Saudi Arabia’s crude production rose to 10.9 million barrels a day on average in the July-to-August period, according to Kpler, compared with just under 10.7 million barrels a day in June. The kingdom’s increase was the main driver behind an overall OPEC+ boost of 400,000 barrels a day to 43.5 million barrels a day in the past two months, the data-intelligence company said.
the U.S. special presidential coordinator for global infrastructure and energy security, said he welcomed production increases carried out in the summer by Saudi Arabia and OPEC.
“Current production in the United States and around the world is not sufficient to meet the strong economic recovery from the pandemic and the threats posed by Russia’s continued war against Ukraine and its use of energy as a weapon,” Mr. Hochstein said.
—Michael Amon in Dubai and Vivian Salama in Washington contributed to this article.