Opec+ holds steady as European Union penalises Russian oil

Opec+ has responded to surging volatility and growing market uncertainty by keeping its oil production unchanged.

he outcome of the brief online meeting yesterday reflects the unpredictability of supply and demand in the coming months, and the wild gyrations in prices of the past week.

The oil producers’ group has only just implemented the hefty two million barrel-a-day reduction agreed at its last gathering.

Meanwhile, European Union sanctions on crude exports from Russia come into effect today, and China is tentatively easing the Covid measures that have eroded its fuel consumption.

Brent crude plunged to its lowest level since September on November 28, but ended up posting its biggest weekly gain in a month.

“With massive and offsetting fundamental and geopolitical risks bearing down on the oil market, ministers understandably opted to hold steady and hunker down,” said Bob McNally, president of Rapidan Energy Group advisers.

The decision by the Organisation of Petroleum Exporting Countries (Opec+) and its allies should hold for at least a few months.

The group’s Joint Ministerial Monitoring Committee – led by Saudi Arabia and Russia – will meet again in February.

The outlook could be clearer by then, and the panel has the power to call extraordinary meetings if it thinks output policy may need to change.

The oil market could look quite different by early 2023, with several potentially historic shifts in supply and demand unfolding in the coming days and weeks.

As Opec+ ministers convened their video conference, officials in Shanghai had just eased some of their Covid restrictions, joining other top-tier Chinese cities as authorities accelerate a shift towards reopening the economy after thousands of demonstrators took to the streets.

Top government officials have signalled a transition away from the harshest containment measures, which have weighed on the economy in the world’s biggest oil importer.

Today, the EU will ban most seaborne imports of Russian crude and block anyone else from using the region’s shipping or insurance services for purchases of Russian oil, unless it’s done so below a $60-a-barrel price cap. 

It’s unclear to what extent those measures will curtail Russian exports. 

The price cap is comfortably above the $50 that the country’s flagship Urals grade of crude currently trades at, according to data from Argus Media.

Yet Moscow has said it would rather cut production than sell oil to any country that adopts the price cap.

With these powerful forces poised to push oil markets in unpredictable directions, Opec+ watchers said the group’s decision was understandable.

“Opec+ rolled over the existing quotas as expected amid uncertainty around Russian flows following the price cap, and a weaker China,” said Amrita Sen, chief oil analyst and co-founder at consultant Energy Aspects.

“The group will continue to monitor markets and should fundamentals deteriorate they will meet prior to June – currently the scheduled next ministerial meeting.”

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