OPEC+ sticks to small supply hike as EU eyes Russian oil ban

In this interview with Manus Cranny from Bloomberg, Dr Carole Nakhle, CEO of Crystol Energy, comments on OPEC+’s latest decision as the EU moves towards banning Russian oil supplies.

Dr Nakhle says that OPEC+’s decision to stick to its gradual supply hike is not surprising; even when oil prices nearly hit $140 /bbl at the beginning of the conflict in Ukraine, the organisation didn’t blink. After all, there is a lot to gain from higher prices.

Meanwhile, most forecasting agencies are warning of a looming recession with negative repercussions on oil demand at a time when more supplies from outside OPEC+ are coming to the market – from the strategic petroleum reserves as well as increase in production in countries like the US, Norway and Guyana.

Dr Carole Nakhle discusses OPEC+'s latest decision as the EU moves towards banning Russian oil supplies with Manus Cranny from Bloomberg

On whether Asia can absorb all the Russian oil supplies, Dr Nakhle argues that some of those supplies can be directed to alternative markets, especially as Russian crude is sold at a discount which would be appealing to many refiners around the world. However, the worrying macroeconomic outlook in China – the biggest oil importer in the world – can limit Asia’s absorptive capacity.

The EU is the largest economic bloc in the world, and it has been relying on Russian fossil fuels for decades. It cannot suddenly turn its back completely on Russian oil. Some waivers and exemptions are likely to be given to some EU members and that by itself will weaken the effectiveness of any oil embargo.

Dr Nakhle further explains that gas markets are regional and are mostly bound by the infrastructure that connects the consumer and producer. While Liquified Natural Gas (LNG) has been weakening that bilateral trade relationship, it still accounts for a small proportion of the total gas produced. On balance, it is unlikely that the EU will ban Russian gas any time soon.

Related Analysis

Sanctions and the Economic Consequences of Higher Oil Prices“, Christof Rühl, Apr 2022

Energy Markets and the Design of Sanctions on Russia“, Christof Rühl, Mar 2022

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