(Bloomberg) -- Russia’s oil customers in Asia are approaching the country’s OPEC+ counterparts in the Middle East in case the latest US sanctions create a supply gap, officials said.
Iraq, the United Arab Emirates and Kuwait have received inquiries to potentially provide additional barrels in coming months, the officials said, asking not to be identified as the discussions are private. They didn’t go into details on how they might respond.
India and China, the growth engines of global oil markets, are scouring for alternatives after President Joe Biden’s administration imposed its most aggressive set of sanctions on Russia’s oil industry to date. The prospect of tougher sanctions on Iran is compounding the supply risks.
The availability of plentiful spare production capacity in the hands of Moscow’s fellow OPEC+ producers has helped cap a surge in oil futures, which have retreated slightly since rallying to a five-month high above $81 a barrel in London on Monday.
For the past couple of years, the Organization of Petroleum Exporting Countries and its allies have been withholding oil supplies in order to stave off a surplus and shore up prices. In coming months they will weigh whether to proceed with plans for gradually restoring some of that output. Sufficiently large losses in Russia and Iran may make that decision much easier.
But making any supply increases before April — or more substantial ones after then — to offset Russian losses could be a delicate task for the coalition, straining its unity.
Delayed Plans
Led by Saudi Arabia, the group has repeatedly delayed plans to restore shuttered output in case it creates a global surplus. Several members are pumping more than they should, and Moscow might not take kindly to the erosion of its market share.
It’s unclear at this stage — just days after the sweeping sanctions were imposed — whether and to what extent the Middle East nations will even need to bolster output.
State-owned oil refiners in India, the top importer of seaborne Russian crude, believe the impact from the latest US sanctions may be temporary, as Moscow finds workarounds and the new Trump administration takes a softer line against the Kremlin.
Several crude traders said they’re confident that OPEC+’s existing plans to restore output throughout this year will be enough to keep markets balanced and cover Russian losses.
The alliance is due to add 120,000 barrels a day each month beginning in April, and a little more for the UAE in recognition of recent additions to its production capacity.
Global markets face a glut this year as subdued demand growth is easily satisfied by new supplies from across the Americas, even if OPEC+ holds output steady, according to the International Energy Agency in Paris.
Riyadh has given no public indication of its intentions in the matter, and has often urged fellow coalition members to be cautious in adding barrels.
In any case, a reduction in Russian output could make the country more compliant with its commitments to OPEC+. Moscow was among the members that pumped above its agreed quota throughout last year, and didn’t make the extra cutbacks pledged as compensation for overproducing.
OPEC+ will have a chance to take stock of the situation at an online monitoring meeting on Feb. 3, before finalizing the decision on its scheduled production revival in early March.
--With assistance from Sherry Su, Bill Lehane and Rakesh Sharma.
