Oil Dips As OPEC Contemplates Excluding Russia From Production Decisions

Meanwhile, analysts argue over the market's health as inflation skyrockets: File Image/Pixabay

A report that the Organization of the Petroleum Exporting Countries (OPEC) is considering exempting Russia from its oil-production targets resulted in losses for crude on Tuesday.

After the Wall Street Journal noted that OPEC exempting Russia could encourage Saudi Arabia, the United Arab Emirates and other members to pump more oil, West Texas Intermediate for July delivery settled down 40 cents to $114.67 per barrel.

Brent's August contract, which has more volume and open interest than July's, settled down $2.00 to $115.60.

Earlier in the session, oil prices jumped when European Union leaders reached an agreement  to ban 90 percent of crude from Russia by the end of the year; Charles Michel, president of the European Council, said the agreement would immediately hit 75 percent of Russian oil imports.

However, existing sanctions against Russia have caused negligible effect given that China and India have swooped in to purchase deeply discounted crude from the former Soviet Union; and Moscow on Tuesday said it will merely find other importers to counter the EU bans. 

Pavel Molchanov, an analyst with Raymond James, pointed out that because the EU embargo only targets tanker deliveries, Russia will boost shipments to China, India, and Turkey; these countries will in turn buy less oil from the Mideast, and more Middle Eastern oil will go to Europe: "Ultimately it will cancel out, or just about, in the sense of global supply."

Also influencing trading on Tuesday were key hubs in China moving to eliminate the last remaining curbs that confined most of its 25 million residents to their homes for two months.

As usual with the energy market, analysts expressed conflicting opinions about how the rest of 2022 will unfold: Daniel Hynes, senior commodity strategist and ANZ, told Bloomberg he predicts a further upside in oil prices in the second half of this year as the market continues to tighten.

However, Ed Morse, global head of commodities research at Citigroup Inc., told the news agency that Brent "Is more in the $70 range than it is in the $120 range" given stagflation and a possible recession, which he said would impact demand growth and are the reasons his firm has come out with a bearish year-end call for crude.

Meanwhile in the U.S., AAA gas prices data showed that retail gasoline prices on Tuesday reached a record national average of $4.62 per gallon as Memorial Day weekend marked the official start of the summer driving season.