AFP

Major oil producers led by Saudi Arabia and Russia began talks Thursday on whether to adjust output, hard on the heels of an EU ban on Russian oil imports.

Analysts had expected OPEC+ producers to likely stick to their policy of only increasing output modestly, as they have done since May 2021.

However, a Wall Street Journal report on Monday that said OPEC was considering suspending Russia from the output deal has sown doubts.

“Such a move would effectively bring a premature end to the group’s supply agreement and pave the way for an unrestricted increase in output,” Stephen Brennock, an analyst at PVM Energy, said.

Oil prices sank more than two percent early Thursday on a similar Financial Times report that said Saudi Arabia was considering a plan to boost output as Russia struggles to meet targets owing to Ukraine war-linked sanctions.

The 13 members of the Organization of the Petroleum Exporting Countries, chaired by Saudi Arabia, and their 10 partners, led by Russia, drastically slashed output in 2020 as demand slumped because of the coronavirus pandemic and worldwide lockdowns.

They have increased output modestly to the tune of around 400,000 barrels per day each month since last year, resisting pressure by top consumers, including the United States, to open the taps wider.

The expectation was that output would increase by another 432,000 barrels per day in July.

“OPEC will likely stick to its production increase plan and won’t make miracles at this week’s meeting,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

She added, however, that the group may revise its strategy “by the end of September”, with Saudi Arabia and United Arab Emirates possibly filling some of the gap. 

“The quota system doesn’t make sense when Russia is held back from increasing its production due to the fresh European sanctions,” she said.

– Russia a ‘pariah’ –

Talks by videoconference began at the technical level around 1225 GMT coordinated by the OPEC headquarters in Vienna, before moving into a plenary session.

European Union leaders agreed on Monday to ban more than two-thirds of Russian oil imports as part of a sixth package of sanctions on Moscow over its offensive in Ukraine.

Britain has already said it plans to phase out Russian oil imports by the end of 2022 and eventually stop importing its gas.  

The United States, too, banned Russian oil and gas days after Russia’s invasion began on February 24.

“Russia has now transformed into a pariah… Apparent elevated US-Saudi shuttle diplomacy lately may indicate that change in OPEC+ may be near,” Seb analyst Bjarne Schieldrop commented.

“More oil from Saudi and the UAE will allow the West to implement sharper bans forcing Russian oil exports lower while not blowing up the oil price,” Schieldrop added.

– OPEC ‘reticence’ –

Russia’s invasion of Ukraine has exacerbated concerns about oil supplies, sending prices to record highs this year.

As the economic screws have tightened around Russia, prices have further soared, putting pressure on the cartel to open the valves more widely and relieve the market.

But Saudi Arabia, OPEC+’s de facto leader, has given no indication it is inclined to make such a move.

Saudi Foreign Minister Prince Faisal bin Farhan told last week’s World Economic Forum in Davos that the kingdom had “done what it could” for the oil market.

“It’s more complex than simply adding barrels to the market,” he added.

Members of the G7 club of industrialised nations last week underlined OPEC+’s “key role” in the face of the tightening of international markets.

Soaring oil prices have stimulated the Gulf region’s economies, with Saudi Arabia recording its highest growth rate in 10 years in the first quarter of 2022.

Susannah Streeter, an analyst at Hargreaves Lansdown, said there “is likely to still be reticence about turning on the taps too freely” as a result.

“OPEC has also previously warned that it will be impossible to replace all the volumes lost from Russia due to sanctions, which is still likely to stem further significant drops in crude prices.”

burs-jza/kjm

Eurozone markets rose Thursday as oil prices fell on reports of an increase in output to make up for a Russian shortfall.

The Frankfurt DAX index was up by 0.6 percent at 14,423.36 points, while the Paris CAC 40 rose 0.8 percent at 6,469.92 points. London’s FTSE 100 was shut for a holiday.

Equities fell in Asia as traders grow increasingly worried that central bank moves to rein in inflation could tip economies into recession.

Energy prices have soared since Russia invaded Ukraine on February 24, fuelling a sharp rise in inflation.

The OPEC+ group of major oil producers, led by Saudi Arabia and Russia, is expected to continue its policy of modestly raising production when it meets to discuss output later on Thursday, days after the EU agreed to ban most Russian crude.

But there was some relief for those concerned about inflation as oil sank more than two percent on a Financial Times report that Saudi Arabia was considering a plan to boost output as Russia struggles to meet targets owing to Ukraine war-linked sanctions.

The benchmark Brent crude was down 2.6 percent at $113.26 per barrel, with West Texas Intermediate also down 2.6 percent at $112.25.

Concerns about tighter Russian supplies have sent crude soaring this year, just as demand picks up owing to the reopening of economies but Riyadh has ignored previous calls to pump more. 

The FT report follows a Wall Street Journal article saying OPEC was considering removing Russia from an agreement that has locked producers into limited output increases, which analysts said could lead to an early end of the pact and allow nations to open the taps more.

“Everything rests on the OPEC+ meeting today,” said Jeffrey Halley, analyst at online trading platform OANDA.

“If Russia is sidelined, I mean exempted from its production quotas, with other members stepping up, European markets could find themselves with a decent tailwind today. A business-as-usual outcome is likely to see a disappointing reaction,” he said.

– ‘Brace yourself’ –

After a weak lead from Wall Street, Asia was mostly in negative territory. Hong Kong shed one percent, while Tokyo, Sydney, Seoul, Singapore, Wellington, Manila, Jakarta and Taipei were also well down. Shanghai and Mumbai edged up.

Concern over the outlook was shared by Wall Street titan Jamie Dimon, who warned that the wave of unprecedented crises were combining to cause an economic superstorm.

“That hurricane is right out there down the road coming our way,” the JPMorgan Chase & Co boss said. “We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself.”

However, in sign of the huge uncertainty coursing through markets, a top strategist at the bank, Marko Kolanovic, painted a more positive picture, forecasting a market recovery through 2022.

“We remain positive on risky assets due to near record-low positioning, bearish sentiment, and our view that there will be no recession given support from US consumers, global post-Covid reopening, and China stimulus and recovery,” he wrote in a note.

– Key figures at around 1030 GMT –

Frankfurt – DAX: UP 0.6 percent at 14,423.36 

Paris – CAC 40: UP 0.8 percent at 6,469.92

EURO STOXX 50: UP 0.5 percent at 3,778.16 

London – FTSE 100: Closed for a holiday

New York – Dow: DOWN 0.5 percent at 32,813.23 (close)

Tokyo – Nikkei 225: DOWN 0.2 percent at 21,413.88 (close)

Hong Kong – Hang Seng Index: DOWN 1.0 percent at 21,082.13 (close)

Shanghai – Composite: UP 0.4 percent at 3,195.46 (close)

Euro/dollar: UP at $1.0686 from $1.0658 on Wednesday

Pound/dollar: UP at $1.2547 from $1.2492

Euro/pound: DOWN at 85.19 pence from 85.25 pence

Dollar/yen: DOWN at 129.77 yen from 130.15 yen

Brent North Sea crude: DOWN 2.6 percent at $113.26 per barrel

West Texas Intermediate: DOWN 2.6 percent at $112.25 per barrel

Major oil producers led by Saudi Arabia and Russia hold talks Thursday on whether to adjust output, hard on the heels of an EU ban on Russian oil imports.

Analysts had expected OPEC+ producers to likely stick to their policy of only increasing output modestly, as they have done since May 2021.

However, a Wall Street Journal report on Monday that said OPEC was considering suspending Russia from the output deal has sown doubts.

“Such a move would effectively bring a premature end to the group’s supply agreement and pave the way for an unrestricted increase in output,” Stephen Brennock, an analyst at PVM Energy, said.

Oil prices sank more than two percent on Thursday on a similar Financial Times report that Saudi Arabia was considering a plan to boost output as Russia struggles to meet targets owing to Ukraine war-linked sanctions.

The 13 members of the Organization of the Petroleum Exporting Countries, chaired by Saudi Arabia, and their 10 partners, led by Russia, drastically slashed output in 2020 as demand slumped because of the coronavirus pandemic and worldwide lockdowns.

They have increased output modestly to the tune of around 400,000 barrels per day each month since last year, resisting pressure by top consumers, including the United States, to open the taps wider.

The expectation was that output would increase by another 432,000 barrels per day in July.

“OPEC will likely stick to its production increase plan and won’t make miracles at this week’s meeting,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

She added, however, that the group may revise its strategy “by the end of September” with Saudi Arabia and United Arab Emirates possibly filling some of the gap. 

“The quota system doesn’t make sense when Russia is held back from increasing its production due to the fresh European sanctions,” she said.

– Russia a ‘pariah’ –

Talks by videoconference begin at the technical level at 1200 GMT coordinated by the OPEC headquarters in Vienna, before moving into a plenary session.

European Union leaders agreed on Monday to ban more than two-thirds of Russian oil imports as part of a sixth package of sanctions on Moscow over its offensive in Ukraine.

Britain has already said it plans to phase out Russian oil imports by the end of 2022 and eventually stop importing its gas.  

The United States, too, banned Russian oil and gas days after Russia’s invasion began on February 24.

“Russia has now transformed into a pariah… Apparent elevated US-Saudi shuttle diplomacy lately may indicate that change in OPEC+ may be near,” Seb analyst Bjarne Schieldrop commented.

“More oil from Saudi and the UAE will allow the West to implement sharper bans forcing Russian oil exports lower while not blowing up the oil price,” Schieldrop added.

– OPEC ‘reticence’ –

Russia’s invasion of Ukraine has exacerbated concerns about oil supplies, sending prices to record highs this year.

As the economic screws have tightened around Russia, prices have further soared, putting pressure on the cartel to open the valves more widely and relieve the market.

But Saudi Arabia, OPEC+’s de facto leader, has given no indication it is inclined to make such a move.

Saudi Foreign Minister Prince Faisal bin Farhan told last week’s World Economic Forum in Davos that the kingdom had “done what it could” for the oil market.

“It’s more complex than simply adding barrels to the market,” he added.

Members of the G7 club of industrialised nations last week underlined OPEC+’s “key role” in the face of the tightening of international markets.

Soaring oil prices have stimulated the Gulf region’s economies, with Saudi Arabia recording its highest growth rate in 10 years in the first quarter of 2022.

Susannah Streeter, an analyst at Hargreaves Lansdown, said there “is likely to still be reticence about turning on the taps too freely” as a result.

“OPEC has also previously warned that it will be impossible to replace all the volumes lost from Russia due to sanctions, which is still likely to stem further significant drops in crude prices.”

burs-jza/lth

Equities fell in Asia on Thursday as traders grow increasingly worried that central bank moves to rein in inflation could tip economies into recession.

However, price pressures were eased by a more than two percent drop in crude following a report saying Saudi Arabia had indicated it was willing to pump more if Russia was unable to fulfil pledges to boost production.

Having enjoyed a healthy start to the week, markets are again on the back foot owing to bank policymakers’ plans to tighten their belts to prevent inflation running out of control.

The Bank of Canada ramped up its key lending rate by half a percentage point Wednesday and warned of further tough measures down the line as energy and food costs spike.

The move came as several top Federal Reserve officials said they were in favour of similar increases in the United States. Wednesday also saw the central bank begin to offload its vast bond holdings that were bought as part of its quantitative easing programme to bring rates down to near zero.

Now observers fear that the increasingly hawkish moves by finance heads — combined with China’s lockdown-induced weakness and the Ukraine war — will cause economies to contract.

“We do see the rise in probability of a recession in the second half of this year, potentially persisting into 2023 as the Fed continues to battle inflation,” Tracie McMillion, of Wells Fargo Investment Institute, told Bloomberg Television.

She added that traders may not have completely taken into account the Fed’s balance sheet reduction.

“The impact of quantitative tightening starting to roll off the Fed’s balance sheet this month is really untested and unprecedented. Our guess is that it’s probably not fully priced into markets,” she said.

– ‘Brace yourself’ –

After a weak lead from Wall Street, Asia was mostly in negative territory. Hong Kong shed one percent, while Tokyo, Sydney, Seoul, Singapore, Wellington, Manila, Jakara and Taipei were also well down. Shanghai and Mumbai edged up.

Frankfurt and Paris opened higher. London was closed for a holiday.

Concern over the outlook was shared by Wall Street titan Jamie Dimon, who warned that the wave of unprecedented crises were combining to cause an economic superstorm.

“That hurricane is right out there down the road coming our way,” the JPMorgan Chase & Co boss said. “We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself.”

However, in sign of the huge uncertainty coursing through markets, a top strategist at the bank, Marko Kolanovic, painted a more positive picture, forecasting a market recovery through 2022.

“We remain positive on risky assets due to near record-low positioning, bearish sentiment, and our view that there will be no recession given support from US consumers, global post-Covid reopening, and China stimulus and recovery,” he wrote in a note.

There was some relief for those concerned about inflation as oil sank more than two percent on a Financial Times report that Saudi Arabia was considering a plan to boost output as Russia struggles to meet targets owing to Ukraine war-linked sanctions.

The bans imposed on Moscow have sent crude soaring this year, just as demand picks up owing to the reopening of economies but Riyadh has ignored previous calls to pump more. But with supplies increasingly strained, the OPEC linchpin could be coming round.

“This will be well received by Western leaders given inflation — and inflation expectations — remain eye-wateringly high, and central banks try to raise rates at the risk of tipping their economies into a recession,” said Matt Simpson of StoneX Financial.

“More supply essentially soothes some of those inflationary fears, even if there is a lot more work to do when it comes to fighting inflation.”

The FT report follows a Wall Street Journal article saying OPEC was considering removing Russia from an agreement that has locked producers into limited output increases, which analysts said could lead to an early end of the pact and allow nations to open the taps more.

OPEC is due to hold its monthly meeting Thursday to discuss output, though it is considered unlikely the group will make any changes yet.

– Key figures at around 0810 GMT –

Tokyo – Nikkei 225: DOWN 0.2 percent at 21,413.88 (close)

Hong Kong – Hang Seng Index: DOWN 1.0 percent at 21,082.13 (close)

Shanghai – Composite: UP 0.4 percent at 3,195.46 (close)

Euro/dollar: UP at $1.0689 from $1.0658 on Wednesday

Pound/dollar: UP at $1.2535 from $1.2492

Euro/pound: UP at 85.28 pence from 85.25 pence

Dollar/yen: DOWN at 129.85 yen from 130.15 yen

Brent North Sea crude: DOWN 2.2 percent at $113.75 per barrel

West Texas Intermediate: DOWN 2.2 percent at $112.71 per barrel

New York – Dow: DOWN 0.5 percent at 32,813.23 (close)

London – FTSE 100: Closed for a holiday