The movement of ICDX oil prices was observed to have strengthened almost 3% in a week, supported by tight supply amid rising demand. On the supply side, the European Union (EU) leaders gave final approval (2/6) to sanctions against Russia targeting an embargo on oil imports via sea, which will take full effect by the end of 2022. The impact of the embargo, which has the potential to reduce Russian oil production, which has already fallen by 1 million bpd, will further decline when the ban begins.
From the demand side, the full lifting of the lockdown in the city of Shanghai on June 1 and coupled with the easing of restrictions in the capital Beijing fueled hopes that China's economy would recover, which also boosted demand for fuel from the world's biggest oil importer.
In addition, the demand for oil by India also has the potential to increase, especially oil from Russia triggered by the massive discounts given by Russia after the EU agreed to the Russian oil embargo. India is the world's third-largest oil importer and consumer, while for the Asian region, India is the second-largest oil consumer after China.
OPEC+ Agreed to Increase Supply by 50% in July and August
In its latest meeting (2/6), OPEC and its allies agreed to increase production to 648,000 bpd in July and August, or up about 50% from the June production quota of 432,000 bpd. However, the market still doubts the success of the increase plan because Russia is also included in the quota allocation, even though Russia's own production has now fallen by around 1 million bpd after the imposition of sanctions from various countries against Russia related to the Ukraine conflict. Yet, on the other hand, the decision to increase production indicates the willingness of OPEC+ member countries to overcome the current tight market supply.
India Ready to Buy More Russian Oil
An Indian oil refiner is discussing finalizing a new contract to purchase Russian crude over the next six months, which is expected to see an increase in import volumes due to consideration of massive discounts from Rosneft after the European Union agreed to an embargo on Russia's oil, said a source familiar with the matter (6/6). The source also added that if agreed, the six-month supply contract will be a separate purchase contract for the existing contract, for details on volume and price are still being negotiated with Indian banks who will fully finance all cargoes.
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Source: ICDX Research