On Monday, the Organization of Petroleum Exporting Countries (OPEC) informed the European Union that Russia crude oil sanctions will erase about 7 million barrels per day from the global oil market.
According to Reuters, the cartel warned European Union member nations that it would be impossible to replace 7 million barrels per day given the current demand level and disruption in supplies.
OPEC Secretary-General Mohammad Barkindo was quoted as saying, “we could potentially see the loss of more than 7 million barrels per day (bpd) of Russian oil and other liquids exports, resulting from current and future sanctions or other voluntary actions,”
“Considering the current demand outlook, it would be nearly impossible to replace a loss in volumes of this magnitude.”
However, European Union representative encouraged OPEC to proffer solutions that will increase Crude Oil deliveries inorder to curb the continuous increase price of crude oil in the globa market. This the EU believes is the responsibility of OPEC
Following the sactions imposed by Washington and Brussels on Moscow last month, the price of crude oil reached a 14-year high. This promted the United States and International Energy Agency request to OPEC to increase the global supply of crude oil to the market in other to regulate price.
However, OPEC Sec. Gen. Barkindo said the current highly volatile market was a result of “non-fundamental factors” outside OPEC’s control, in a signal the group would not pump more.
OPEC+, which consists of OPEC and other producers including Russia, will raise output by about 432,000 barrels per day in May, as part of a gradual unwinding of output cuts made during the worst of the COVID-19 pandemic.
The EU-OPEC meeting on Monday afternoon was the latest in a dialogue launched between the two sides in 2005.
Russian oil has been excluded from EU sanctions so far. But after the 27-country bloc agreed last week to sanction Russian coal – its first to target energy supplies – some senior EU officials said oil could be next.
The European Commission is drafting proposals for an oil embargo on Russia, the foreign ministers of Ireland, Lithuania and the Netherlands said on Monday at a meeting of EU foreign ministers in Luxembourg, although there was no agreement to ban Russian crude.
Australia, Canada and the United States, who are less reliant on Russian supply than Europe, have already banned Russian oil purchases.
EU countries are split over whether to follow suit, given their higher dependency and the potential for the move to push up already high energy prices in Europe.
The EU expects its oil use to decrease 30 percent by 2030, from 2015 levels, under its planned policies to fight climate change – though in the short term, an embargo would trigger a dash to replace Russian oil with alternative supplies.
Crude Oil Dips on Prolong Chinese Lockdown
Global oil prices dipped slightly on Monday as economic reports revealed Chinese retail sales dropped 11% year-on-year in the month of April following the nation’s decision to extend the COVID-19 lockdown to about 46 cities.
Brent crude oil, against which Nigerian oil is priced, dropped to $108.96 per barrel on Monday before rebounding to $112.66 after reports showed Saudi Arabia’s crude oil export declined to 7.235 million barrels per day (mbpd) in the month of March. This represents a decline of 1% from 7.307 million bpd reported in February.
Also, crude oil prices were supported by reports that European Union could reach a deal to impose additional sanctions on Russia for invading Ukraine. According to European Union diplomats and officials, the new sanctions will target Russian crude oil.
However, at Investors King we are expecting the drop in Russia’s crude oil supply to be balanced out by the expected drop in Chinese crude oil imports due to the COVID-19 lockdown. Therefore, will expect oil prices to remain around the current level in the near term.
“With a planned ban by the EU on Russian oil and slow increase in OPEC output, oil prices are expected to stay close to the current levels near $110 a barrel,” said Naohiro Niimura, a partner at Market Risk Advisory.
It is important to note that despite Saudi Arabia’s crude oil exports dropping by 1%, crude oil production jumped to its highest level in about 24 months at 10.300 million bpd, up from 10.225 million bpd produced in the previous month.
Meanwhile, concerns over falling oil inventories in the United States bolstered gasoline futures to an all-time high on Monday.
“Oil prices will remain bullish, especially WTI’s near-term contract, as U.S. gasoline prices continued to rise amid weaker imports of petroleum products from Europe,” said Kazuhiko Saito, chief analyst at Fujitomi Securities.
OPEC and Allies Raises Nigeria’s Crude Oil Quota by 1%
The Organisation of Petroleum Exporting Countries (OPEC) and allies, together known as OPEC plus, have raised Nigeria’s crude oil quota by 1% or 19,000 barrels per day to 1.772 million barrels per day (mbpd) for the month of June.
This was disclosed in the OPEC plus report ‘June 2022 Required Production’ released on Thursday.
The increment was after the European Union announced it was working on new sanctions that will target Russian oil over its invasion of Ukraine. The union blamed Russia for a series of human abuse and the ongoing surge in global risk and economic uncertainty.
This, coupled with the extended COVID-19 lockdown restrictions in China, the world’s largest importer of crude oil, forced OPEC plus to increase Nigeria and others’ quotas.
With Nigeria’s Bonny Light crude trading at $110 a barrel, Nigeria’s daily oil revenue starting from June 2022 will be $194.92 million or N81.67 billion.
In a statement obtained by Investors King “Following the conclusion of the 28th OPEC and non-OPEC Ministerial Meeting, held via video conference on 5th May, it was noted that continuing oil market fundamentals and the consensus on the outlook pointed to a balanced market.
“It further noted the continuing effects of geopolitical factors and issues related to the ongoing pandemic. The OPEC and participating non-OPEC oil-producing countries, therefore, decided to reaffirm the decision of the 10th OPEC and non-OPEC Ministerial Meeting on 12th April 2020 and further endorsed in subsequent meetings, including the 19th OPEC and non-OPEC Ministerial Meeting on the 18th July 2021.”
Oil Prices Extended Gains on New Russia Sanctions
Crude oil prices rose in the early hours of Wednesday on reports European Union is working on new sanctions against Russia oil
Crude oil prices rose in the early hours of Wednesday during the Asian trading session on reports that the European Union is working on new sanctions against Russia for invading Ukraine.
The new sanctions will target Russia’s oil industry, according to Ursula von der Leyen, the President of the European Commission.
According to Josep Borrell, the head of the foreign policy unit at the EU’s executive European Commission, the European Union is working on its sixth sanctions to de-SWIFT more banks and list names of disinformation actors and tighten some loose ends regarding oil imports in the region.
“We are working on the sixth package of sanctions which aims to de-SWIFT more banks, list disinformation actors and tackle oil imports.”
Brent crude oil rebounded to $103.52 per barrel at 6:09 am Nigerian time on Wednesday, up from $103.03 a barrel it traded on Tuesday. The U.S West Texas Intermediate oil stood at $102.77 per barrel.
Crude oil dipped on Tuesday on concerns China’s COVID-19 lockdown could hurt demand for the commodity given China’s position as the world’s largest importer of crude oil. However, the European Union announcement and 3.5 million barrels declined in U.S. crude oil inventories in the week ended April 29 bolstered oil prices on Wednesday.
Still, the drop in the global manufacturing purchasing manager index for the first time since June 2022 in the month of April remained a concern.
Caroline Bain, the chief commodities economist at Capital Economics, explained that given rising inflation and interest rates, “the big picture is clearly negative for commodities demand.”
“While supply constraints may keep commodity prices elevated for some time yet, we think subdued demand will weigh on most prices later this year and in 2023,” Bain said.
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