Oil prices climb as group asssess EU Russian ban

Oil producer group OPEC+ on Thursday agreed to rubber-stamp another small production increase for June, amid persistent concerns over weaker Chinese demand and shortly after the world’s largest trading bloc outlined proposals for new sanctions against Russian crude.

The influential energy alliance of OPEC and non-OPEC partners decided to raise production targets by 432,000 barrels per day for next month, sticking to an existing strategy of gradually unwinding record supply cuts.

OPEC+ will hold its next meeting on June 2.

Led by OPEC kingpin Saudi Arabia, the group swiftly agreed in late March to raise its output targets for May.

“OPEC+ is unlikely to supply additional oil into the market to resolve any market tightness, as they are very happy with prices remaining above $100/bb,” Ajay Parmar, senior oil market analyst at commodity intelligence service ICIS, said in a research note.

“Any substantial increase in additional supply from OPEC+ will threaten these high prices, and so instead, they are expected to continue with the slow claw-back of market share throughout 2022,” Parmar said.

The group’s latest meeting comes amid an unfolding supply crisis. The European Union on Wednesday announced plans to ban Russian oil imports within six months and refined products by the end of the year in its latest round of economic sanctions.

The bloc’s proposed measures reflect the widespread anger at Russian President Vladimir Putin’s unprovoked onslaught in Ukraine.

To be sure, Russia is the world’s third-largest oil producer, behind the U.S. and Saudi Arabia, and the world’s largest exporter of crude to global markets. It is also a major producer and exporter of natural gas.

Oil prices jumped on the news Wednesday, adding to gains made since the Kremlin launched its invasion on Feb. 24.

International benchmark Brent crude futures traded at $111.82 during afternoon deals in London Thursday, up 1.5% for the session, while U.S. West Texas Intermediate futures stood at $109.22, around 1.4% higher.

Stephen Brennock, a senior analyst at PVM Oil Associates in London, said expectations are that OPEC+ will “remain unmoved” by the prospect of an increasing shortfall in Russian oil supplies even as several member states struggle to meet their production targets.

“The upshot is that the OPEC+ quota gap is set to widen. In other words, the oil group’s compliance rate with production cuts is only going to increase,” Brennock said in a research note.

“All of this has the makings of a greater than expected supply deficit over the coming months. The tightening supply backdrop bodes well for prices and should give oil bulls the upper hand, at the least in the short term,” he added. “Simply put, there are currently more reasons to be bullish than bearish.”