January 27, 2023

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OPEC+ sticks to policy amid flagging economy and Russian oil cap By Reuters

©Reuters. FILE PHOTO: An OPEC sign is seen on the day of the OPEC+ Vienna meeting in Vienna, Austria, October 5, 2022. REUTERS/Lisa Leutner

By Alex Lawler, Ahmad Ghaddar and Olesya Astakhova

LONDON/DUBAI (Reuters) – OPEC+ agreed to stick to its oil production targets at a meeting on Sunday as oil markets struggle to gauge the impact of a slowing Chinese economy on demand and a G7 price cap for Russian oil on supply.

The decision comes two days after the Group of Seven (G7) nations agreed on a price cap for Russian oil.

OPEC+, made up of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, angered the United States and other western nations in October when they agreed to cut production by 2 million barrels per day (bpd), about 2% of world demand, from November to the end of 2023.

Washington accused the group and one of its leaders, Saudi Arabia, of siding with Russia despite Moscow’s war in Ukraine.

OPEC+ argued it had curbed production due to a weaker economic outlook. Oil prices have fallen since October on slower Chinese and global growth and higher interest rates, leading to market speculation that the group could cut production again. [O/R]

But on Sunday the group of oil producers decided to keep the policy unchanged. Key ministers will next meet for a monitoring committee on February 1, while a full meeting is scheduled for June 3-4.

On Friday, the G7 and Australia agreed on a $60-per-barrel price cap for Russian seagoing vessels in a bid to deprive President Vladimir Putin of revenue while keeping Russian oil flowing to world markets.

Moscow said it would not sell its oil below the cap and was considering how to respond.

Many analysts and OPEC ministers have said the price cap is confusing and likely inefficient given Moscow has sold most of its oil to countries like China and India, which have refused to condemn the war in Ukraine.

Neither at an OPEC meeting on Saturday nor at the OPEC+ meeting on Sunday was Russia’s price cap discussed, sources said.

Russian Deputy Prime Minister Alexander Novak on Sunday said Russia would rather cut production than supply oil below the price cap, saying the cap could affect other producers.

Sources have told Reuters that several OPEC+ members have expressed frustration with the cap, saying the anti-market measure could eventually be used by the West against any producer.

The United States said the measure was not aimed at OPEC.

JP Morgan said on Friday that OPEC+ could review production in the new year based on new data on Chinese demand trends and consumer adherence to price caps on Russia’s crude oil production and tanker flow.