OPEC+ keeps oil output targets; injects 'some stability' amid Russian oil import ban and price cap
An earlier decision by OPEC+ to cut oil production by 2 million barrels per day - or 2 per cent of global demand - angered the US and other Western nations, with Washington accusing the group of siding with Russia despite its war with Ukraine.
SINGAPORE: The decision by OPEC+ nations to keep oil output targets unchanged – ahead of a looming European Union (EU) import ban and a price cap kicking in on Russian oil – will bring some stability to global markets, analysts said on Monday (Dec 5).
Oil prices climbed 2 per cent on Monday, after OPEC+, comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, agreed on Sunday to stick to their October plan to slash oil output by 2 million barrels per day to keep prices high.
Observers said the decision was expected, as major oil producers assess the impact of the various developments.
Ms Vandana Hari, founder of global oil and gas markets consultancy Vanda Insights, believes the group is “trying to inject at least some degree of predictability and stability in the markets”.
G7’S RUSSIAN OIL PRICE CAP
This comes two days after the Group of Seven (G7) nations agreed to a US$60 per barrel price cap for seaborne Russian oil, a move to cut Moscow’s revenue while keeping Russian oil flowing to global markets.
However, the price cap is widely seen as inefficient, as Russia has been selling most of its oil to countries like China and India. Moscow has said it will not supply oil to countries that seek to impose a price cap, a move which observers do not expect China and India to follow.
The cap is “practically inconsequential”, Ms Vandana told CNA’s Asia First. “It's already been set a good $5 above where Russian crude is already trading.
“China and India, who are the major buyers of Russian crude ... have stayed away from the price cap. I do not expect them to join it at any point either.”
The price cap is ending up “being a sort of a political manoeuvre”, said Ms Vandana. “It's not really going to crash Russian oil revenues as it had intended to do.”
Ms Vandana pointed out that the group would be rolling over its current production targets “not just for a month or two, (but) for the next six months”.
It has scheduled its next full meeting in June, “which means that the next policy decision that they will be making will be for July of next year”, she added.
“Of course, they said they are open to calling emergency meetings if they need to tweak their production targets in between.
“So that's quite a departure from what we've seen over the past several months of monthly meetings.”
The decision by OPEC+ to cut production by 2 million barrels per day - or 2 per cent of global demand - from November until the end of 2023 angered the United States and other Western nations, with Washington accusing the group of siding with Russia despite its war with Ukraine.
But the organisation argued it had cut output because of a weaker economic outlook.
EU BAN ON SEABORNE RUSSIAN CRUDE OIL
From Monday, the EU will ban the purchase of seaborne crude oil from Russia, in a bid to reduce the country's oil revenues following its invasion of Ukraine.
Russia will need to divert its crude exports - about 1.3 million barrels per day - away from Europe due to the restrictions, Dr Kang Wu, head of global demand and Asia analytics at S&P Global Commodity Insights, pointed out.
“The market first will sort of react to this uncertainty, maybe a spike of the prices here and there,” Dr Wu told CNA938’s Asia First. “But overall, the oil market, as of now, is well supplied.”
Ms Vandana said the sanctions agreed on in June, including the embargo on Russian oil products from Feb 5, have been gradually priced in by global markets.
“So the market has been gradually factoring in, which is not to say that there wasn't uncertainty,” she added.
“I think the bigger uncertainty was probably created by them coming up with this price cap mechanism almost as an afterthought.”