Saudis may exit Opec+ pact early amid Russia turmoil: RBC Capital Markets

TO the many reverberations from Russia’s invasion of Ukraine, another might be an early end to the Opec+ oil supply pact.

The 23-nation alliance led by Saudi Arabia is due to finish restoring production halted during the pandemic by the end of September. But as European Union sanctions threaten to curtail the exports of Opec+ member Russia, Riyadh could bring back the barrels earlier than scheduled, RBC Capital Markets LLC predicts. 

Such a move may satisfy the Biden administration’s repeated calls for help in dealing with politically damaging levels of inflation. The kingdom would likely attach conditions to any changes to the pact as it seeks to rehabilitate its partnership with the US and comprehensive assurances on regional security, says RBC. Trips to the country by American envoys - and the prospect of a visit by President Biden himself - might seal the deal. 

“There’s been too much shuttle diplomacy for this to be smoke and mirrors about a US-Saudi reset,” RBC strategist Helima Croft said in an interview.

The Wall Street Journal reported earlier that the Organization of Petroleum Exporting Countries is contemplating an even more radical option: suspending Russia from the coalition’s quota system, as sanctions prevent Moscow from increasing output. The Saudis and the United Arab Emirates would fill the resulting supply gap, the WSJ said.

This might be a step too far, requiring President Vladimir Putin to voluntarily surrender share of the oil market and assist the EU’s counter-offensive against his military campaign. 

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But even if Opec+ doesn’t pursue this extreme option, the expectation that it will stick with a pre-programmed schedule of supply increases for the months ahead no longer seems a safe bet. BLOOMBERG