WASHINGTON (DTN) -- Nearby-month delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange continued higher in early trade Thursday, with both crude benchmarks advancing 3% after the Organization of the Petroleum Exporting Countries and Russia-led partners agreed on a small, planned production increase of 432,000 barrels per day (bpd) for June, sticking to an agreement of incremental monthly production boosts despite the European Union's decision to embargo Russian oil imports.
In its third meeting since the Russian invasion of Ukraine on Feb. 24, OPEC+ agreed to continue raising their collective production by 432,000 bpd -- a monthly target agreed upon last summer. The decision comes despite repeated calls in recent months from the United States and other oil-consuming nations for the coalition to tap into remaining spare capacity in Saudi Arabia and the United Arab Emirates -- two producers that can still rapidly increase output to offset a supply deficit on the global market.
Worsening the supply deficit, the EU proposed on Wednesday a full embargo on Russian crude imports within the next six months that should further reduce global oil supplies and send prices higher.
Russian crude production has already fallen by more than 1 million bpd since the invasion of Ukraine in response to reduced demand for its oil overseas and in the domestic market. Of the 10.1 million bpd of crude oil that Russia produced in 2021, it exported more than 45% or 4.7 million bpd. The majority of Russia's crude oil and condensate exports, nearly half of Russia's total exports, are typically sent to Europe. For Russia, it's highly unlikely China and India, Asia's largest importers, could replace the lost export demand from Europe.
For the EU, the issue at stake is that there is simply not enough spare capacity to tap into to replace Russian oil imports.
In financial markets, the U.S. Federal Open Market Committee on Wednesday approved a rare 0.5% increase in overnight borrowing costs, bringing the central bank's benchmark federal funds rate to a target range between 0.75% and 1%. This marked the most aggressive monetary policy tightening in decades, which is aimed at rapidly reducing the pandemic-era stimulus that has contributed to rising price pressures across the U.S. economy.
The FOMC, which usually lifts interest rates in 0.25% increments, last raised rates by 0.5% in 2000. In a statement released Wednesday afternoon, FOMC said it "Anticipates that ongoing increases in the target range will be appropriate," setting the stage for another large rate hike at the Fed's meeting next month on June 14-15.
In early trading, NYMEX West Texas Intermediate futures for June delivery advanced $2.50 barrel (bbl) to $110.58 bbl, and the international crude benchmark July Brent contract topped $113 bbl, up $2.84. NYMEX June RBOB rallied 3.8 cents to $3.6930 gallon, and the June ULSD contract declined 1.88 cents to $4.1782 gallon.
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