LONDON: Opec+ is set to agree another small increase in production targets for June, delegates from the group say, as expectations that sanctions will crimp Russian output further counter demand growth concerns from Chinese lockdowns.
Opec+ ministers are set to meet today and are expected to agree to raise production targets by 432,000 barrels per day (bpd) for June, four Opec+ delegates told Reuters.
Under a deal reached in July last year, the group is set to increase output targets by 432,000 bpd every month until the end of September, to unwind its remaining production cuts.
In late March, it agreed to go ahead with the planned output increase for May.
The Opec+ meeting this week comes against the backdrop of a major announcement from the European Union which yesterday proposed a phased oil embargo on Russia in its toughest measures yet to punish Moscow for its war in Ukraine.
Opec secretary general Mohammad Barkindo, in a speech seen by Reuters to a meeting of the Opec+ Joint Technical Committee which took place yesterday, said it was not possible for other producers to replace Russian supply.
“What is clear is that Russia’s oil and other liquids exports of more than 7 million bpd cannot be made up from elsewhere. The spare capacity just does not exist,” he said.
“However, its potential loss, through either sanctions or voluntary actions, is clearly rippling through energy markets.”
Oil prices jumped by more than 4 per cent on the EU announcement, with Brent crude rising to near $110 a barrel.
According to an internal report seen by Reuters, Opec+ expects supply to exceed demand by 1.9m bpd in 2022, 600,000 bpd higher than a previous forecast.
The report, prepared ahead of the JTC meeting, also sees OECD oil stocks slightly exceeding the 2015-2019 average in the fourth quarter.
The revision reflects a weaker oil demand growth forecast adopted by the Organisation of the Petroleum Exporting Countries (Opec) in its April oil monthly report.
Opec now expects 2022 world oil demand to expand by 3.67m bpd in 2022, down 480,000 bpd from its previous forecast, and Barkindo said the Chinese lockdowns were curbing use of transport fuels and petrochemical feedstock.
“This has affected oil demand, with some suggesting that the country is facing the biggest oil demand shock since early 2020,” he told the JTC.
Two Opec+ sources said the JTC concluded its meeting and left the demand growth forecast unchanged.
Opec+ expects oil production from non-Opec countries in the alliance to average 18.2m bpd, the data showed, a 600,000 bpd downward revision from the previous forecast, partly reflecting lower Russian supplies.
Russia’s own forecasts showed output may fall by as much as 17pc this year, an economy ministry document seen by Reuters showed.
According to the document, Russian oil output may decline to between 433.8m and 475.3m tonnes – equivalent to between 8.68m and 9.5m barrels per day – in 2022, from 524m tonnes in 2021.