OPEC and its allies pledged on Sunday to stand ready to take “immediate” action to stabilize global oil markets a day before the start of sweeping new Western restrictions on Russia’s oil exports.
OPEC+, which is led by Saudi Arabia and Russia, decided against making any immediate changes to the group’s production targets, but said the cartel of oil producers was ready to “get together at any time.” moment” and could “take immediate additional measures”.
The group’s online meeting came a day before what will be one of the most dramatic shifts in global oil markets in decades, when the EU will ban imports of Russian oil by sea in retaliation for the invasion of Ukraine by Moscow.
At the same time, G7 leaders agreed to launch a so-called price cap that aims to keep Russian oil flowing to countries like India and China to avoid creating widespread shortages, but only if crude is sold for less than $60 a barrel to crimp Moscow’s revenue.
“If markets move unfavorably, OPEC+ will step in,” said JPMorgan’s Christyan Malek. “He has made it clear that he wants to balance the market proactively and preemptively.”
Russia has repeatedly said it will not sell oil to countries using the cap, and has instead quietly moved to acquire more than 100 tankers to form a ‘ghost fleet’ of ships to try to keep its oil flowing. despite Western restrictions.
But traders still expect Russia’s oil exports to fall in the coming months as it is likely short of tankers and may struggle to find enough new buyers outside the EU.
Russian Deputy Prime Minister Alexander Novak reiterated on Sunday that Moscow would not export oil subject to a price cap imposed by the West, “even if we have to reduce production somewhat”.
“We will sell oil and petroleum products to countries that will work with us on market terms, even if we have to cut production somewhat,” Novak said.
The extent of the decline in Russian oil exports could determine whether oil prices rise or fall in 2023. Producers like OPEC+ are also worried about a slowdown in demand if major economies fall into recession.
Helima Croft, a former CIA analyst now at RBC Capital Markets, said: “We just don’t know if the price cap will launch as planned and avoid market disruption or if Moscow has something more disruptive in store. .”
Analysts said it made sense that OPEC+ would not make big changes to production policy until the full impact of Western restrictions on Russian oil could be determined in the coming weeks.
Amrita Sen of Energy Aspects, a consultancy, said OPEC+ faced a tough market as there was also huge uncertainty around China, the world’s biggest oil importer. This increases the likelihood that OPEC+ will meet again in early 2023.
Beijing has started easing its latest round of demand-sapping lockdowns amid growing protests over the measures, which are expected to curb economic output.
OPEC+ “will continue to monitor the markets and if the fundamentals deteriorate, they will meet before June, [which is] currently the next scheduled ministerial meeting,” Sen said.
The next meeting of OPEC’s Joint Ministerial Monitoring Committee, which has the power to convene a production meeting, is due in early February.
Saudi Energy Minister Prince Abdulaziz bin Salman al-Saud may have had an eye on the reaction of the White House, which in October accused the country of siding with Russia after leading the ‘OPEC+ to a substantial reduction in production targets of 2 million barrels per day.
The cut came shortly before the crucial midterm elections in the United States in which the Biden administration feared gasoline prices would play a significant role. Saudi Arabia has always maintained that the cuts were solely due to concerns about the impact of a possible future recession on oil demand, but the move has hurt relations with the United States.
OPEC+ hinted at the U.S. opposition in its statement after Sunday’s meeting, saying it had been “recognized in retrospect by market participants as the necessary and appropriate course of action.”
Oil prices have not risen as Western consumers feared since October, with international benchmark Brent crude holding at around $85 a barrel – around the level it was trading at before the OPEC+ cut. and well below its highs immediately following Russia’s invasion of Ukraine, when it surged to over $120 a barrel.
Prince Abdulaziz, the half-brother of Crown Prince Mohammed bin Salman – the de facto ruler of Saudi Arabia – has indicated in the past that the Gulf state could increase oil production if Russian production drops sharply.
But he also said the kingdom was ready to make further cuts, with many analysts expecting Saudi Arabia to try to defend prices if they start falling. This could be a blow to hopes of lower inflation next year in many economies.
Additional reporting by Polina Ivanova in Berlin and Derek Brower in New York
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