The Confusing Rumors About Russia's Suspension From OPEC+

Politics, Geopolitics & Conflict

The rumors this week that OPEC could suspend Russia' from its production quota agreement were likely just a testing of the waters. These rumors were complicated by the media's confusing use of the term "suspended". On Tuesday, unnamed OPEC delegates suggested to media that the group could suspend Russia. On Wednesday, the OPEC+ Joint Technical Committee said it did not discuss suspending Russia's quota. Some argued that the term "suspended", in OPEC speak, should be substituted with the word "exempt". Using that interpretation, the report - from anonymous delegates - was that the group was considering giving Russia a pass on limiting its production per the current agreement. The move could be seen as OPEC trying to make room for the group to increase production more than planned, but the group hardly needs justification for doing that, with or without Russia. After all, the oil consumers of the world have been begging OPEC for just that - more oil. In the end, Thursday's OPEC meets concluded without any revocation of Russia's production limits.

OPEC+ agreed on Thursday to bring their planned September production increase forward, and spread it across July and August. The result is instead of rubber-stamping a 423,000 bpd increase in July, the pact announced a 648,000 bpd increase in July, and another 648,000 in August. In reality, moving it forward represents a 50,000 bpd real increase from now until September, and that's only if OPEC+ can actually ramp up faster than it has been able to until now, which is doubtful. Expect to see sagging compliance for July due to the large quota increase, even as Saudi Arabia and the UAE are expected to be able to increase at a quicker rate than their peers. Oil prices fell on rumors that there would be a larger increase, but the official announcement lent stability to the market and prices rebounded, supported by the EU ban on imported Russian oil.

Russia cut off gas to Shell under a contract supplying Germany on Wednesday, following moves to cut off gas to both Denmark and the Netherlands for refusal to pay in rubles.

You can sanction Russian crude in the West, but that doesn't mean the crude products that were made using Russian crude are identifiable and sanctionable. The U.S. may have banned imports of Russian crude oil, but that's not to say it isn't purchasing refined products that were made - at least partially - from Russian crude in countries that are willing to purchase it at a discount. India's Reliance, for example, has stepped up its Russian crude oil purchases sevenfold. The refined products made in India could make their way anywhere - including into the EU and the U.S.

Cold War rhetoric is reaching a new high in the aftermath of Washington's decision to give rocket launchers to Kyiv, which has the Kremlin warning of a "direct confrontation" between the U.S. and Russia, as the Kremlin tightens the noose around Ukraine's Donbas region.

The UN has said Iran now has enough uranium to produce a nuclear weapon, as tensions rise in various proxy war locations, from Iraq to Yemen. Earlier this week, Iranian-backed groups launched an attack in Iraq, targeting the Al-Asad military base, which houses U.S. forces, just days after the U.S. seized Iranian oil off the coast of Greece. Iran responded to that by seizing two Greek ships, prompting Greece to warn about the safety of vessels in the Strait of Hormuz - a key oil shipping route that Iran has threatened before. As nuclear talks stall, unrest is spreading in Iran, reminiscent of the deadly riots of 2019.

Deals, Mergers & Acquisitions

A proposed merger between London-listed Tullow and UK competitor Capricorn Energy would see Tullow acquire Capricorn in an $827-million all-share deal. Tullow shareholders would own 53% of the combined group, if the deal is approved.

Also this week, Australian Woodside Energy completed its all-stock merger with BHP's oil and gas unit.

Discovery & Development

On the discovery front, in the Norwegian Sea, ConocoPhillips has finished delineating the Slagugle oil discovery, downsizing its earlier estimates of between 12 and 32 million standard cubic meters of recoverable oil equivalent. New preliminary estimates indicated between 6 and 13 million Sm3.

Regulatory Monitor

The big news on the regulatory front this week is all about windfall taxes on oil and gas companies. First, Hungary's populist leader, Viktor Orban, imposed a tax on "extra profits" for companies across the board, including energy. This was followed by the UK's windfall tax on oil and gas companies, affecting North Sea operators. Then, on Thursday, a senior economic advisor for the White House said the administration was considering a similar windfall tax on oil and gas companies in the United States, shrugging off what he conceded could be a negative impact on supply as oil prices soar.