OPEC+ countries decided on Sunday to maintain their production quotas in a particularly unstable climate, on the eve of the entry into force of new sanctions against Russian crude, two participants in the meeting said.
The representatives of the thirteen members of the Organization of the Petroleum Exporting Countries (OPEC) led by Riyadh, and its ten allies led by Moscow, have agreed to maintain the course decided in October of a reduction of two million barrels per day until the end of 2023.
An OPEC+ statement confirmed the maintenance of the previous decision, which had been taken to support prices and had aroused the ire of the White House eager to lower prices at gas stations. Since then, the prices of the two world references for black gold have lost ground and are between 80 and 85 dollars, far from their peaks of more than 130 dollars reached in March after the start of the invasion of Ukraine.
Which, “in retrospect”, validates our strategy, welcomes the cartel. “It was the course of action to take to stabilize the markets,” he argues. The next meeting was set for June 4, 2023, but the group said it was ready to meet “at any time” between now and then to take “immediate further action” if necessary.
Focus on Russia
The long-awaited decision was made after a quick meeting by videoconference, returning the alliance to the habits taken during the Covid-19 pandemic after an exceptional meeting in early October in Vienna, the headquarters of the cartel. This status quo is justified in particular by “uncertainty about the impact on Russian crude production” of the new set of sanctions, said Giovanni Stauvono, an analyst at UBS.
Russia is facing a cap on the price of its oil that the European Union, the G7 and Australia are set to put in place on Monday “or very shortly thereafter.” It is also on this day that the EU embargo on Russian seaborne crude begins, which will wipe out two-thirds of its purchases in Moscow. The objective of these measures: to deprive Moscow of the means to finance its war in the Ukraine.
The Ural crude oil price is currently hovering around $65 a barrel, just above the $60 ceiling, implying limited short-term effect. But the Kremlin has warned that it will no longer deliver oil to countries that adopt this mechanism. This puts some nations “in a very uncomfortable position: choosing between losing access to cheap Russian crude or exposing themselves to G7 sanctions,” says Craig Erlam, an analyst at Oanda.
Price at half mast
Another element that played in the OPEC+ decision, according to the UBS expert, was “a certain reduction” in the strict sanitary restrictions in China, likely to alleviate market concerns. Demand from this country, which is the world’s largest crude importer, is scrutinized by investors, and the slightest sign of an economic slowdown or a resurgence of the epidemic has a direct impact on prices.
Against this gloomy backdrop and amid fears of a global recession, North Sea Brent and its US equivalent, WTI, have fallen by around 8% since the alliance’s last meeting in early October. If OPEC+ opted for caution on Sunday, the alliance could in the coming months “adopt a more aggressive position”, in a warning to the West that bristles the cartel by regulating prices, predicts Edoardo Campanella, an analyst at ‘UniCredit’.
What “aggravates the global energy crisis,” he warns. And draw the ire of Washington, whose diplomatic efforts with Riyadh to lower prices have failed.
Source: BFM TV
