In the face of falling prices, a potential Russian oil price cap, and an embargo on Russian crude shipments, major oil producers are expected to stick to their current output strategy or even cut production further when they meet on Sunday.
At their most recent ministerial meeting in October, the 13-nation Organization of Petroleum Exporting Countries, led by Riyadh, and its ten allies, led by Moscow, known collectively as OPEC+, agreed to cut output by two million barrels per day (BPD) beginning in November.
The OPEC+ reduction was the largest since the peak of the COVID pandemic in 2020.
The cartel meets via videoconference on Sunday, ahead of the EU imposing an embargo on Russian crude shipments on Monday, amid fears of an economic slowdown.
On Thursday, the G7 countries, the EU, and Australia appeared to be close to reaching an agreement on a $60 per barrel price cap for Russian oil.
An Iranian source told AFP Thursday that the alliance should vote for a “rollover of the previous decision” to cut two million bpd, arguing that the market was “very uncertain” in light of impending European sanctions.
“Odds are that the group will reassert its commitment to its most recent output cuts,” says PVM Energy analyst Stephen Brennock, adding that they “may even potentially announce new cuts” to boost prices.
Since the October meeting, oil prices have fallen to levels seen in early 2022, far below the $130-per-barrel highs seen in March following Russia’s invasion of Ukraine.
On Thursday, two global crude benchmarks were trading around $85 per barrel.
Covid-related restrictions in China have raised concerns about the world’s largest crude oil importer’s energy demand.
After nationwide protests against health restrictions erupted, Beijing allayed fears by hinting at a possible relaxation of the strict zero-Covid policy.
Inflationary pressures in Europe and across the Atlantic have fueled fears of a recession.
Beyond the economic doom, the big unknown in the oil equation right now is Russian oil, as Western nations seek to decouple themselves as quickly as possible from Moscow’s energy supplies.
According to ANZ analysts, the EU has decided to prohibit member states from purchasing Russian oil exported by sea beginning December 5, “putting over two million barrels per day at risk.”
Investors are also looking into a $60-per-barrel price cap on Russian crude proposed by the European Commission in order to strengthen the effectiveness of the EU embargo.
The EU and Washington had already agreed on the need to cap the price Western clients pay for Russian oil in order to prevent Moscow from profiting from price increases caused by its own war on Ukraine.
President Vladimir Putin warned last week that any attempt by the West to limit the price of Russian oil would have “grave consequences” for global markets.
According to UniCredit economist Edoardo Campanella, Russia “has several options to circumvent such a cap,” and “OPEC+ may feel compelled to adopt a more aggressive stance” by cutting or threatening to cut production even further.
“Russia may also retaliate by using its clout within OPEC+ to push for additional production cuts in the future, exacerbating the global energy crisis,” Campanella said.
