By Arathy Somasekhar
HOUSTON (Reuters) -Oil prices pulled back some of their gains on Tuesday after a report that some OPEC members were exploring the idea of suspending Russia’s participation in an oil-production deal.
Exempting Russia from OPEC+, which groups the cartel and allies, could potentially pave the way for other producers to pump significantly more crude, something that the U.S. and European nations have pressed them, the Wall Street Journal reported, citing OPEC delegates.
U.S. West Texas Intermediate (WTI) crude was trading at $115.25 a barrel, up 18 cents or 0.2% from Friday’s close by 2:14 p.m. ET (1814 GMT). It had touched its highest since March 9 earlier in the session. There was no settlement on Monday’s U.S. Memorial Day holiday.
Brent crude for July, which expires on Tuesday, were up $1.1, or 0.9%, to $122.80 a barrel, after earlier rising to $125.28 – its highest since March 9. The more active August contract hit a high of $120.80.
“The suspension of Russia from OPEC plus could be a precursor to Saudi Arabia and the United Arab Emirates utilizing their spare production capacity, because they would feel that they no longer have a production quota agreement that needs to recognize Russia’s interest,” said Andrew Lipow of Lipow Oil Associates in Houston.
Both benchmarks were set to end May higher for a sixth straight month, gaining about 75% over the period after European Union on Tuesday agreed to a partial and phased ban on Russian oil and China decided to lift some COVID-19 restrictions and the U.S. summer driving season kicked off.
The premium of August-loading Brent contracts over a six-month spread hit a nine-week high at close to $15 a barrel, indicating current supply tightness.
EU leaders agreed in principle to cut 90% of oil imports from Russia, the bloc’s toughest sanction yet on Moscow since the invasion of Ukraine three months ago.
Once fully adopted, sanctions on crude will be phased in over six months and on refined products over eight months. The embargo exempts pipeline oil from Russia as a concession to Hungary.
OPEC+ is set to stick to a modest July output hike of 432,000 barrels per day, OPEC+ sources said.
“Falling Russian crude exports will keep prices high this year, although we do expect greater non-Russian volumes, particularly from OPEC members and North America, to help bring prices down from around $120 per barrel currently towards $100 by year-end,” Capital Economics economist Edward Gardner wrote in a note.
U.S. crude oil production rose in March by more than 3% to 11.7 million bpd, its the highest since November, according to the government. However, output has been slow to recover from the impact of the coronavirus pandemic and is still far below its record high of 12.3 million bpd in 2019.
Oil prices found further support as Shanghai announced an end to its COVID-19 lockdown, and will allow people in China’s largest city to leave their homes and drive their cars from Wednesday.
Still, price gains were limited by inflation fears after hawkish comments from a Federal Reserve official that spooked stock market investors. [.N]
U.S. retail gasoline prices also touched a record national average of $4.622 a gallon, according to AAA gas prices data as Memorial Day weekend marked the official start of the summer driving season.
(Additional reporting by Shadia Nasralla in London and Jeslyn Lerh; Editing by Marguerita Choy and Edmund Blair)