OPEC+ sticks to modest increase in oil production

LONDON - OPEC and allied oil-producing countries have decided to stick to a modest increase in production, even as Europe’s proposed phaseout of Russian oil threatens to yank millions of barrels off a global market already thirsty for crude.

At an online meeting Thursday, the alliance known as OPEC+ — which includes non-member Russia — stayed with its road map to gradually open the oil taps.

It agreed to add 432,000 barrels per day in June. The plan is to make those regular increases to restore cuts made in 2020 during the worst of the pandemic recession.

Oil prices have risen as the boost in production remains smaller than what countries like the US are pressing for to ease high prices at the pump. Some OPEC+ members also haven't been able to reach their allotted quotas. Two members — Saudi Arabia and the United Arab Emirates — have almost all the group's spare capacity.

Increasing production beyond the quotas would complicate relations among members, and OPEC has made it clear to European officials that the oil cartel is not going to increase production to compensate for lost Russian oil.

The war in Ukraine has been a driving force in oil markets in recent days, and more so after the European Union's executive commission on Wednesday proposed phasing out Russian crude oil imports within six months.

Fears of a cutoff of Russian oil, natural gas or both have helped keep energy prices high. Russia is the world's largest oil exporter, with some 12% of global supply, and Europe is its biggest customer.

Beyond the EU oil boycott, Western financial sanctions have deterred banks and insurers from supporting the oil trade with Russia. Some buyers have shunned Russian oil because they don't want to be associated with the Kremlin.

The International Energy Agency has said some 3 million barrels a day of Russian oil could wind up being forced off the market starting this month “due to international sanctions and as the impact of a widening customer-driven embargo comes into full force.”

The Paris-based organization said that “while some buyers, most notably in Asia, increased purchases of sharply discounted Russian barrels, traditional customers are cutting back.”

Meanwhile, COVID-19 restrictions are weighing on fuel use in China and undermining oil demand. The government discouraged people from traveling over the May Day holiday, while in Beijing major tourist sites such as the Forbidden City and the Beijing Zoo have closed their indoor exhibition halls and are operating at partial capacity.

Also helping hold back bigger surges in oil prices is the release of oil from strategic reserves by the US and other International Energy Agency member countries.

But “higher prices could be around the corner,” said Bjornar Tonhaugen, head of oil markets research at Rystad Energy. “The oil market has not fully priced in the potential of an EU oil embargo, so higher crude prices are to be expected in the summer months if it's voted into law.”

US oil prices were little changed Thursday, up 0.1% ahead of the meeting to $107.90 per barrel, which is more than 40% higher since the start of the year. International benchmark Brent crude rose 0.4%, to $110.51 per barrel.

For US consumers, average gasoline prices stood at $4.19 per gallon Wednesday, up $1.29 from a year ago. The price of crude oil accounts for about 60% of the price at the pump in the United States.

Diesel for trucks and farm equipment has risen even more, by $2.34, to $5.43 per gallon.

Drivers in Europe, where taxes make up a larger proportion of the price at the pump, are paying more, too. Gasoline prices are averaging 1.95 euros per liter in Germany, or the equivalent of $7.77 per gallon, while diesel has been at 2.02 euros per liter, or $8.05 per gallon.