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Members of the Organization of Petroleum Exporting Countries (OPEC) are reportedly considering a suspension of Russia from an oil production deal in the wake of sanctions from Western nations, according to a Tuesday report from The Wall Street Journal.
Russia — the world’s third largest producer of oil — will likely see its oil output fall nearly 10% this year, according to a forecast from S&P Global. As international oil prices rise amid the nation’s invasion of Ukraine, the 10 OPEC members and their 13 non-OPEC partners are likely to approve an output increase of 432,000 barrels per day on Thursday, the Journal reported.
Since 2016, Russia has coordinated oil output with OPEC through the Declaration of Cooperation (DoC). “We all agreed that Russia is technically out of the effective participation in the DoC at the moment,” an OPEC delegate told the Journal.
The report occurs as European Union leaders agreed to slash 90% of Russian oil imports by the end of 2022, according to CNBC.
In an interview with The Daily Wire, American Enterprise Institute senior fellow James Coleman explained that OPEC has historically made similar moves with respect to other countries hit by international sanctions.
“If a country like Russia, Iran, or Venezuela is under sanctions that are preventing it from producing very much oil, there’s no real need to have it as part of a group that has restrictions on its oil production,” Coleman, a law professor at Southern Methodist University, explained to The Daily Wire. “Russia is not going to be able to produce that much anyway given the sanctions that are preventing it from selling.”
Indeed, OPEC operates by setting production quotas for its members, thereby allowing the alliance to manipulate global oil prices to the members’ advantage. OPEC nations collectively represent 60% of the world’s total traded petroleum, according to the U.S. Energy Information Administration.
Coleman added that OPEC’s move could be seen as “friendly” to Russia.
“This is not a hostile move in any way,” Coleman said. “Normally OPEC says to Russia, ‘You need to restrain your production.’ In this circumstance, they’re basically saying, ‘Don’t worry about that. You go ahead and produce as much as you want.’”
On the other hand, a drop in Russian oil supply may lead OPEC to increase production quotas — a move that “arguably could be seen as more of a hostile act toward Russia,” Coleman said. Nevertheless, many of the OPEC countries are currently “not producing as much as they’re allowed to.”
As of Wednesday afternoon, Brent Crude has surged from roughly $99 to nearly $116 between the beginning of the Russian invasion on February 24 and the first day of June. West Texas International crude similarly increased from under $93 to almost $115 over the same time frame. As he warned investors to “brace yourself” for an economic “hurricane,” JPMorgan Chase CEO Jamie Dimon cautioned on Wednesday that oil prices may hit $150 to $175 per barrel.
Prices for regular unleaded gas hit $4.67 in the United States this week, according to AAA. In particular, California — which boasts some of the nation’s most aggressive restrictions on nonrenewable energy — saw prices of $6.19 per gallon.