OPEC is silent as the EU rushes to ban Russian oil

The Organization of the Petroleum Exporting Countries and its OPEC + partners, led by Russia decided this week will not increase its target production for next month. In fact, OPEC + has hit the EU in the face, because this decision means that no additional oil will come to Europe to replace the sanctioned Russian barrels. Earlier this week, the European Commission proposed an oil embargo on Russian crude oil and refined products as part of the EU’s sixth sanctions package. Crude oil embargo, EC President Ursual von der Leyen He saidit would take effect after six months, and the embargo on refined products would take effect later this year.

The European Union imports about 3.5 million barrels of crude oil and refined products from Russia. This is about half of Russia’s total oil and product exports and about a quarter of EU oil imports. The six-month period should help EU members find alternative suppliers. However, they are few and do not plan to increase production to help the EU.

According to Reuters report at an OPEC meeting on Thursday, citing two sources, delegates “completely avoided any discussion of sanctions against Russia, ending talks in almost a record time of just under 15 minutes”.

The report quoted Investec’s head of merchandise, Callum Macpherson, as saying, “OPEC + continues to see this as a problem created by the West, not as a fundamental supply issue that it should answer.”

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In March, OPEC Secretary General Mohammed Barkindo, warned that there is no free capacity in the world to compensate for the hypothetical full embargo on Russian oil exports, which is about 7 million barrels per day in crude and refined products.

“This is how we will survive this crisis. There is currently no capacity in the world to replace 7 million barrels of exports, ”Barkindo told CERAWeek in March, reiterating his remarks ahead of the OPEC + meeting this week.

However, there is enough capacity to replace Russian exports to the European Union, within OPEC itself. According to Rystad Energy estimates quoted Reuters, Saudi Arabia, the UAE, Kuwait and Iraq together have reserve production capacity of about 4 million barrels per day.

“Most of these countries have huge onshore storage capacities that can be exploited, which means several million barrels could be nominated for export in weeks, if not days,” said Louise Dickson, an analyst at Norwegian energy consulting firm.

This is good news for the European Union, as far as supply is concerned. As for prices, it will be a completely different matter. Because the EU must be aware that this is not about providing alternative supplies, but about doing so at relatively affordable prices.

However, in this situation, Saudi Arabia, Iraq, Kuwait and the UAE have no motivation for discounts. On the contrary, they are motivated to do what they do – stick to a modest increase in production and enjoy rising oil prices while market movements defy, for now, sayings that high oil prices are the cure for high oil prices.

Although they might refuse to talk about it, the EU sanction against Russia proved to be a boon for OPEC producers. It has done wonders for oil and gas prices, especially given that many OPEC producers have been technically unable to increase their production, providing additional support to benchmarks and increasing producer profits.

The likelihood that things will change in the next six months – assuming the EU votes on the embargo – is questionable, based on OPEC’s reactions to UK and US requests for more oil before the war in Ukraine. Speaking of the US, their ability to fill the oil gap in Europe is also questionable.

According to the US Energy Information Administration, the country’s crude oil production will only grow this year 800,000 bpd. The U.S. may be able to reach out to its reserves to send some crude oil to its European allies, but it has already announced the release of 180 million barrels from strategic oil reserves to reduce local retail fuel prices.

Reports that the oil from last year’s SPR edition won zero federal government favor with voters, so she might have been more cautious this time. In fact, beware – the White House has said it plans to buy 60 million barrels to replenish the SPR in the next few years.

The EU wants to give itself six months to find alternative suppliers of crude oil before it stops importing Russian barrels. That this is six months that Russia can use to divert more of its oil to the east is not something Brussels likes to talk about, but it doesn’t matter.

Without OPEC on its side, the EU might have to tell its citizens the bad news that petrol, diesel and everything transported by internal combustion engine vehicles will remain expensive for longer than expected.

Irina Slav for Oilprice.com

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