May 20, 2022
Russian deputy prime minister Alexander Novak

Alexander Novak, Russia’s Deputy Prime Minister, has said that the country is in favor of a gradual increase in OPEC+ output. He says that Russia would be willing to boost its production by about 500,000 b/d from early next month. According to S&P Global Commodity Insights, 2.8 million b/d of Russian oil will be shut-in from April to 2022. Meanwhile, member countries of the IEA have announced plans to release storage oil in order to offset the impact of Russian oil exports.

In addition to the OPEC+ deal, the Russian government has not yet signed a delivery agreement with Belarus, the country which usually purchases 1.5 million tonnes of Russian oil every month. The result is that Russia will only be able to ship around a third of its oil to Belarus this month. This means that the remaining oil will need to be routed elsewhere. Also, space in pipelines is limited due to maintenance at refineries and by Belarus.

Despite this potential impact on the global market, Russian oil exports have risen since the annexation of Ukraine. But a total stoppage of Russian exports could exacerbate the situation further. If Russia halted its exports, the prices of European gas would likely rise further. Considering that Russian gas supplies about 40% of the EU’s gas demand, a potential disruption of Russian gas would be especially damaging for Italy. However, European countries could turn to existing suppliers, such as Algeria and Nigeria, to supplement the gap. However, expanding production of these sources is difficult.

Despite the reduction in Russian oil exports, more cargoes are headed to China, India, and Korea for export. This cheaper oil is attracting customers in these countries, which are already struggling to find replacement barrels. Meanwhile, China has begun stockpiling its own crude in anticipation of possible war with Russia. There is no clear end in sight, but a decline in Russian oil supply will only further destabilize the global market and cause an even larger problem for social cohesion.

The US has asked OPEC+ members to boost their output but has been rebuffed previously. OPEC+ produces 60% of the world’s crude oil, and is the largest producer. The group plays a vital role in oil price volatility. Although Russia is not a member of OPEC, it has been working with the group to limit output since 2017.

As a result of the sanctions, the state-owned gas exporter, Gazprom, is now forced to switch payments from US dollars to Russian rubles. In addition, European buyers must now transfer funds to a new account in Russia. In return, Gazprom will be forced to accept payments in rubles. While the European Union and the US are not the only countries affected by the sanctions, they are worried that they will be used as political ammunition against the Russian government.