OPEC+, US production to determine direction

As parties to an OPEC production deal meet this week, its approval trends mean U.S. production and developments in Eastern Europe will determine the direction of crude oil prices, officials said. analysts.

It has been more than 60 days since Russian military forces stormed Ukraine. The price of West Texas Intermediate, the US benchmark, was $91.59 a barrel when the war started on February 25. It soared 35% in just over a week to hit $123.70 on March 8.

Western powers increasingly attempted to financially isolate Russia as punishment for the invasion. Millions of barrels of Russian oil, as well as other commodities such as wheat, could become untradable due to sanctions or because companies want to avoid the shame of continuing to do business with Russia.

Crude oil prices, however, have since fallen from those highs of early March, in part because the initial shock from the invasion has faded. But they are still high. Oil closed last week up about 4% at $104.69 a barrel.

Ed Longanecker, president of the Texas Independent Producers & Royalty Owners Association, said wild market swings are likely to continue as long as the dispute drags on in Eastern Europe. Russian fuels may be disappearing from the market, but global demand is also falling, as China locks down cities to stifle COVID-19 outbreaks.

In addition, other producers, including the United States, are beginning to increase production.

“Domestic producers will continue efforts to increase oil and natural gas production to meet demand here and abroad,” Longanecker said. “OPEC+ is likely to stick to its existing plan and may agree to a slight production increase at its meeting this week.”

OPEC+ refers to the core group of producers of the Organization of the Petroleum Exporting Countries and their non-member states, including Russia. Despite tight supplies, the group has not increased production beyond its earlier agreement of 400,000 barrels per day per month.

“The OPEC+ meeting will be a non-event,” said Vandana Hari, founder and CEO of Vanda Insights in Singapore. “You could write the press release now.”

Previous meetings this year have set records for brevity. OPEC+ meets again on May 5.

Hari said the group’s award decision only gives a potential moratorium on Russian fuels more impact on the European economy. EU energy ministers meet on Monday, but Germany has been reluctant to target Russian energy exports and other countries have broken ranks, caving in to Russian demands to pay for energy products in roubles, despite contracts that require accounts to be settled in dollars or euros.

“There is the issue of unity,” Hari said.

Tamas Varga, an analyst at London-based oil broker PVM, said he was curious to see how the loss of Russian oil, gas and refined products would be made up for, and the United States would step in to fill the void.

US crude oil exports continue to accelerate, and the US economy was a net exporter of refined petroleum products last week. US energy giant Chevron said it plans to increase production in the lucrative Permian shale basin by 15% this year to address supply shortages.

National crude oil inventories are 16% lower than the five-year average for this time of year

Apart from the OPEC+ meeting, the market is certain to move on the Federal Reserve’s May 4 rate decision. A price increase is expected. When the Fed raises rates, the dollar strengthens, which means fewer dollars are needed to buy oil, which drives prices down.

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