The fact that Russia has opted to act unilaterally, with no forward guidance to markets or OPEC+ members, could be a canary in the coal mine for further price volatility.
So far, Russian oil production has shown surprising resilience in the face of Western sanctions, recovering to 10.9 million barrels per day from a post-invasion low of 10.5 million barrels per day in April. Major forecasting agencies this week revised upwards their estimates for Russian oil production for this year and 2024. The announced cut would push Russian oil production down to 10.3 million to 10.4 million bpd.
Additionally, Moscow’s move would deepen the 2 million barrels-per-day supply freeze announced late last year by OPEC+, which Russia is co-leading with Saudi Arabia. At a committee meeting earlier this month, coalition ministers saw no need to change their production limit, which runs until the end of 2023. This morning, OPEC+ delegates said Moscow’s decision to unilaterally cut production would not change forward policy. The situation remains fluid.
Elsewhere, Turkey’s Ceyhan export port on the Mediterranean coast remained closed on Friday after a 7.8-magnitude earthquake struck the region, disrupting infrastructure and killing over 25,000 people. Turkish President Tayyip Erdogan estimated that some areas affected by the disaster will be “uninhabitable for years”. Ceyhan is a major export hub for Azerbaijani, Kazakh and Iraqi oil exports, processing around 1 million barrels per day. That accounts for about 1% of the world’s oil supply. On Thursday, BP declared Azerbaijan Force Major for crude oil shipments along the Baku-Tbilisi-Ceyhan (BTC) pipeline while further assessments of the pipeline operations are conducted. Bloomberg News further reported that Azerbaijani crude oil shipments bound for the Turkish port are not expected to resume until late next week. To make matters worse, intelligence services reported that one or two storage tanks at the port of Ceyhan may have been damaged, despite earlier assurances from Turkish officials that the port was unharmed by the earthquake. In the absence of clear information, the Ceyhan port disruption will support oil prices into next week, adding to concerns about available oil supplies in the global market.
Around 7:45 a.m. EST, WTI futures for March delivery climbed to $79.63 a barrel, up $1.58 in overnight trading. The international benchmark crude Brent contract on ICE rose to $86.28 a barrel, up $1.81 a barrel. NYMEX RBOB March contract was up $0.0528 to 2.5003 gallons and March ULSD futures were up $0.0555 to 2.8709 gallons.
Liubov Georges can be reached at [email protected]
Comments are closed.