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Russia signals a "red light" for increased production—will global oil prices now enter a downward phase?

Release date:

2022-02-18

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Abstract

OPEC, along with oil-producing countries like Russia, reached an agreement to cut production by 1.2 million barrels per

At the end of 2018, OPEC, along with oil-producing countries like Russia, agreed to cut production by 1.2 million barrels per day, pushing international oil prices up to around $70. Now, even before the six-month production-cut deal expires, reports have emerged that Russia is considering increasing its output, sparking market concerns that global oil prices could start declining sooner than expected.

Russia Flashes "Red Light" on Production Increase

Russia's crude oil production fell to 11.19 million barrels per day from May 1 to 6, down from 11.23 million barrels per day in April. Meanwhile, Russian oil producers had already cut their crude oil supplies to the Russian Oil Transportation Company by 650,000 barrels per day in early May.

With the Druzhba pipeline resuming oil shipments to European customers, Russia's production is expected to soon return to pre-incident levels.

Goldman Sachs believes that a U.S. ban on Iranian oil exports would lead to higher oil prices. Meanwhile, OPEC and non-OPEC oil-producing countries like Russia will decide in June whether to extend the current six-month production-cut agreement into the second half of the year. If Russia resumes increasing its output after June, it could push oil prices lower—potentially intensifying volatility in global oil markets over the coming months.

"The tanker attack" escalates further

According to a CNN report from the U.S., two Saudi Arabian oil tankers were deliberately attacked in the Gulf of Oman on the 12th. Saudi Arabia condemned the attack as a threat to global oil supply security.

On May 13, CNN, citing Saudi Press Agency, reported that one of the two oil tankers attacked was en route to a U.S. customer of Saudi Aramco after having just loaded crude oil at Saudi Arabia's Tanura oil port.

On the 13th, Iran's Foreign Ministry called on Saudi Arabia to clarify the incident involving the sabotage of two Saudi oil tankers. Foreign Ministry Spokesperson Mohammadi stated that day that ensuring maritime safety and security in the region is of utmost importance.

Mousavi warned against any "carefully orchestrated plots by malicious elements" and "adventurism from foreign powers," stressing the need to prevent actions that could undermine stability and security in the region.

Geopolitical risks in the Middle East are straining the supply-and-demand dynamics of the global oil market, potentially offsetting the threat of increased Russian production—and sending oil prices to new record highs.

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