Oil rises as market pressures OPEC to fill supply gap in Russia

The industrial facilities of the PCK Raffinerie oil refinery are photographed in Schwedt/Oder, Germany, March 8, 2022. The company receives crude oil from Russia via the “Friendship” pipeline. Photograph: Hannibal Hanschke/Reuters

MELBOURNE (Reuters) – Oil prices rose on Thursday after a sharp drop in the previous session as the market pondered whether major producers would boost supplies to help plug an output gap from Russia due to sanctions over its invasion of Ukraine.

Brent crude futures rose $3.10, or 2.8%, to $114.24 a barrel at 0419 GMT after trading in a range of more than five dollars. The benchmark contract fell 13 percent in the previous session, its biggest one-day drop in nearly two years.

US West Texas Intermediate crude futures rose $1.58, or 1.5 percent, to $110.28 a barrel, after trading in a range of more than $4. The contract plunged 12.5 percent in the previous session, its biggest daily drop since November.

Uncertainty over where and when to supply crude from Russia, the world’s second-largest exporter, in a tight market has led to a broad forecast for oil prices between $100 and $200 a barrel.

“So to suggest that the oil market is confused would be an understatement because we are in an unprecedented situation,” said Stephen Innes, managing partner at SBI Asset Management.

The statements of the UAE Minister of Energy and the country’s ambassador to Washington sent mixed signals.

UAE Energy Minister Suhail Al-Mazrouei said on Twitter late on Wednesday that his country is committed to the current agreement struck by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, called the OPEC+ community, to increase oil supply by 400,000 barrels per day per month. Sharp cuts in 2020.

“The UAE believes in the value that OPEC+ brings to the oil market,” Al Mazrouei said. Read more

Just hours ago, prices fell following comments from the UAE ambassador to Washington, in which he said that his country would encourage OPEC to consider increasing production to fill the supply gap due to sanctions imposed on Russia after its invasion of Ukraine. Russia describes its incursion as a “special operation” to disarm its neighbor. Read more

The comments by Emirati officials came as the market also took note of US moves to ease sanctions on Venezuelan oil and efforts to strike a nuclear deal with Tehran, which could lead to more oil supplies coming from Iran later this year. Read more

Talks scheduled for Thursday between the foreign ministers of Russia and Ukraine in Turkey also gave the market pause.

While the UAE and Saudi Arabia have spare capacity, some other OPEC+ producers are struggling to meet their production targets due to a lack of infrastructure investment over the past few years, which will limit their ability to ramp up production further.

“We think it will be difficult for OPEC+ to increase production in this environment,” said Vivek Dar, commodities analyst at the Commonwealth Bank.

But Standard Chartered analysts expected that OPEC would seek to plug the Russian supply gap “to effectively end the OPEC+ agreement in its current form”.

Sonali Paul reports; Editing by Shree Navaratnam and Shivani Singh

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