January 27, 2023

Eureka News

All the News All the Time

OPEC+ agrees to leave production levels unchanged

Major oil-producing countries led by Saudi Arabia and Russia agreed on Sunday to maintain their current production levels amid a climate of uncertainty and ahead of new sanctions against Moscow coming into effect next week.

The representatives of the thirteen members of the Organization of the Petroleum Exporting Countries (OPEC) led by Riyadh and their ten allies led by Moscow decided to stick to their course of a production cut of two million barrels a day by the end of 24 the end of October, agreed in October.

OPEC+ described its October decision to cut as one “driven purely by market considerations,” adding that it was “the necessary and right course of action to stabilize global oil markets,” it said in a statement.

The next OPEC+ ministerial meeting is scheduled for June 4, 2023.

However, the alliance said it was ready “to meet at any time and take additional action immediately” to address market developments and provide support to the oil market as needed.

– Russia Spotlight –

On Friday, the EU, the G7 and Australia agreed on a price cap of $60 a barrel for Russian oil that will come into effect on Monday or shortly thereafter, along with an EU embargo on sea shipments of Russian crude.

It will prevent sea shipments to the European Union of Russian crude oil, which accounts for two-thirds of the bloc’s oil imports from Russia, in an attempt to siphon billions of euros from Moscow’s war chest.

While Russia on Saturday denounced the new price cap and threatened to suspend supplies to any country that passed the measure, Ukraine suggested the cap should have been even lower.

For OPEC+, the big unknown in the oil equation is how badly sanctions will hit Russian supply.

“Uncertainty about the impact of the EU ban on Russian oil production… and the G7 price cap, as well as some easing of mobility restrictions in China, likely supported the decision to extend,” said UBS analyst Giovanni Staunovo.

– An “uncomfortable position” –

Moscow’s threat to suspend supplies to countries that adhere to the price cap will “put some in a very uncomfortable position,” OANDA analyst Craig Erlam said. “The choice between losing access to cheap Russian crude or the G7 impose sanctions”.

Amid the economic slowdown, fueled by rising inflation and fears of China’s weaker energy demand due to Covid-related restrictions, the two global crude oil benchmarks remained far from their March highs near their lowest for the year.

Since the group’s last meeting in early October, Brent North Sea oil and its US counterpart WTI have lost more than 6 percent in value.

Going forward, OPEC+ may still feel compelled to take a “more aggressive stance” by cutting production or threatening to cut it, said UniCredit analyst Edoardo Campanella.

“Russia could also retaliate by using its influence within OPEC+ to press for further production cuts in the future, thereby deepening the global energy crisis,” he added.