Major oil producers led by Saudi Arabia and Russia began talks Thursday on whether to adjust output, hard on the heels of an EU ban on Russian oil imports.

Analysts had expected OPEC+ producers to likely stick to their policy of only increasing output modestly, as they have done since May 2021.

However, a Wall Street Journal report on Monday that said OPEC was considering suspending Russia from the output deal has sown doubts.

"Such a move would effectively bring a premature end to the group's supply agreement and pave the way for an unrestricted increase in output," Stephen Brennock, an analyst at PVM Energy, said.

Oil prices sank more than two percent early Thursday on a similar Financial Times report that said Saudi Arabia was considering a plan to boost output as Russia struggles to meet targets owing to Ukraine war-linked sanctions.

The 13 members of the Organization of the Petroleum Exporting Countries, chaired by Saudi Arabia, and their 10 partners, led by Russia, drastically slashed output in 2020 as demand slumped because of the coronavirus pandemic and worldwide lockdowns.

They have increased output modestly to the tune of around 400,000 barrels per day each month since last year, resisting pressure by top consumers, including the United States, to open the taps wider.

The expectation was that output would increase by another 432,000 barrels per day in July.

"OPEC will likely stick to its production increase plan and won't make miracles at this week's meeting," said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

She added, however, that the group may revise its strategy "by the end of September", with Saudi Arabia and United Arab Emirates possibly filling some of the gap. 

"The quota system doesn't make sense when Russia is held back from increasing its production due to the fresh European sanctions," she said.

Russia a 'pariah' 

Talks by videoconference began at the technical level around 1225 GMT coordinated by the OPEC headquarters in Vienna, before moving into a plenary session.

European Union leaders agreed on Monday to ban more than two-thirds of Russian oil imports as part of a sixth package of sanctions on Moscow over its offensive in Ukraine.

Britain has already said it plans to phase out Russian oil imports by the end of 2022 and eventually stop importing its gas.  

The United States, too, banned Russian oil and gas days after Russia's invasion began on February 24.

"Russia has now transformed into a pariah... Apparent elevated US-Saudi shuttle diplomacy lately may indicate that change in OPEC+ may be near," Seb analyst Bjarne Schieldrop commented.

"More oil from Saudi and the UAE will allow the West to implement sharper bans forcing Russian oil exports lower while not blowing up the oil price," Schieldrop added.

OPEC reticence

Russia's invasion of Ukraine has exacerbated concerns about oil supplies, sending prices to record highs this year.

As the economic screws have tightened around Russia, prices have further soared, putting pressure on the cartel to open the valves more widely and relieve the market.

But Saudi Arabia, OPEC+'s de facto leader, has given no indication it is inclined to make such a move.

Saudi Foreign Minister Prince Faisal bin Farhan told last week's World Economic Forum in Davos that the kingdom had "done what it could" for the oil market.

"It's more complex than simply adding barrels to the market," he added.

Members of the G7 club of industrialised nations last week underlined OPEC+'s "key role" in the face of the tightening of international markets.

Soaring oil prices have stimulated the Gulf region's economies, with Saudi Arabia recording its highest growth rate in 10 years in the first quarter of 2022.

Susannah Streeter, an analyst at Hargreaves Lansdown, said there "is likely to still be reticence about turning on the taps too freely" as a result.

"OPEC has also previously warned that it will be impossible to replace all the volumes lost from Russia due to sanctions, which is still likely to stem further significant drops in crude prices."