Opec+ says ready to adjust oil output as Russia embargo looms

Opec and its allies vowed on Sunday that they were ready to take “immediate” action to stabilize global oil markets a day before the start of new western restrictions on oil exports to Russia.

Opec+, led by Saudi Arabia and Russia, decided not to make any immediate changes to the group’s production targets, but said the cartel of oil producers was ready to “meet at any time” and “may take additional measures immediately”.

The group’s online meeting came a day before what will be the most dramatic change in global oil markets in decades, when the EU will block Russian oil exports at sea in retaliation for Moscow’s aggression in Ukraine.

At the same time, G7 leaders agreed to introduce a so-called oil cap aimed at keeping Russian oil flowing to countries like India and China to avoid widespread shortages, but only if crude is sold below $60 a barrel. crimp the income of Moscow.

“If markets go bad Opec+ will intervene,” said Christian Malek at JPMorgan. “It has made it clear that it wants to regulate the market effectively and efficiently.”

Russia has repeatedly said it will not sell any oil to countries that use the cap, and instead has kept quiet about acquiring more than 100 oil tankers to create a “shadow” ship to try to keep its oil flowing outside western barriers.

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But traders still expect Russian oil exports to fall in the coming months as it runs out of tanks and struggles to find enough new buyers outside the EU.

Russian deputy prime minister Alexander Novak reiterated on Sunday that Moscow will not export oil below any price set by the west, “even if we have to cut production”.

“We will sell oil and petroleum products to those countries that will work with us on market terms, even if we have to reduce production,” Novak said.

The rate of decline in Russian oil exports could determine whether oil prices rise or fall in 2023.

Helima Croft, a former CIA analyst now at RBC Capital Markets, said: “We don’t know if the price hike will be launched as planned and prevent market disruption or if Moscow has something disruptive.”

Analysts say it makes sense that Opec + has made major changes in production policy before the full impact of western restrictions on Russian oil is confirmed in the coming weeks.

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Amrita Sen at Energy Aspects, a consultancy, said Opec+ faced a challenging market as there was great uncertainty about China, the world’s largest oil importer. That raises the possibility that Opec+ will meet again as early as 2023.

Beijing has begun easing its latest round of demand cuts amid protests against the measures, which are expected to drag on the economy.

Opec+ “will continue to monitor markets and if fundamentals deteriorate they will meet before June, [which is] it is now the next scheduled ministerial meeting”, said Sen.

The next meeting of the Opec Joint Ministerial Monitoring Committee, which has the power to call a production meeting, is expected to continue in early February.

Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman al-Saud, may have had one eye on the response of the White House, which in October accused the country of aligning with Russia after leading Opec + to significantly reduce its production target of 2mn barrels per day.

The cuts came shortly before the crucial mid-term elections in the US in which the Biden administration fears that fuel prices will play a major role. Saudi Arabia has always argued that the cuts were due to concerns about the impact of a future recession on oil demand, but the move has damaged relations with the US.

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Opec+ referred to the US opposition in its statement after Sunday’s meeting, saying it was “understood in hindsight by market participants that it was the necessary and the best course of action”.

Oil prices have not risen as western buyers feared since October, with international benchmark Brent crude holding around $85 a barrel – about the level it was trading at before the Opec+ cuts and below its immediate highs after Russia’s invasion of Ukraine. when it jumped to. over $120 a barrel.

Prince Abdulaziz, the brother of Crown Prince Mohammed bin Salman – the de facto leader of Saudi Arabia – has indicated in the past that the Gulf state could increase oil production if Russian production fell significantly.

But he also said the kingdom is ready to make other cuts, with many analysts expecting Saudi Arabia to try to protect prices if they start to fall. That could contribute to lower inflation expectations next year for many economies.

Additional reporting by Polina Ivanova in Berlin and Derek Brower in New York

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