OPEC and its allies maintain their oil production quotas despite sanctions targeting Russian crude

A man walks past the OPEC headquarters on October 4, 2022 in Vienna, Austria.

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 (which form the OPEC+ group), agreed on Sunday, December 4, to stay the course decided in october of a reduction of two million barrels per day until the end of 2023.

A statement from OPEC + confirmed the maintenance of the previous decision, which had been taken to support prices and had aroused the ire of the White House anxious to lower prices at the pump.

Since then, the prices of the two world references of black gold have lost ground and are between 80 and 85 dollars (75 and 80 euros), far from their peaks of more than 130 dollars reached in March after the start of the invasion of Ukraine. What, “retrospectively”validates our strategy, welcomes the cartel. “It was the course of action to adopt to stabilize the markets”he argues.

The next meeting was set for June 4, 2023, but the group said they were ready to meet “at any time” until then to take “immediate additional measures” if necessary.

“Uncertainty about the impact on Russian crude production”

The decision, widely anticipated, was made after a quick meeting by videoconference, the alliance returning to its habits taken during the Covid-19 pandemic after an exceptional meeting in early October in Vienna, headquarters of OPEC +. This status quo is justified in particular by “uncertainty about the impact on Russian crude production” of the new set of sanctions, commented for AFP Giovanni Stauvono, analyst of UBS.

Russia is up against the price cap on its oil that the European Union, the G7 and Australia have planned to put in place on Monday “or very soon after”. It is also on this day that the EU embargo on Russian crude transported by sea begins, which will eliminate two thirds of its purchases in Moscow. The objective of these measures: to deprive Moscow of the means to finance its war in Ukraine.

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The price of a barrel of Urals crude is currently fluctuating around 65 dollars (61 euros), barely above the ceiling of 60 dollars (56 euros), implying a limited short-term effect. But the Kremlin has warned that it will no longer deliver oil to countries that adopt this mechanism.

What place certain nations “in a very uncomfortable position: choosing between losing access to cheap Russian crude or exposing yourself to G7 sanctions”explains Craig Erlam, analyst at Oanda.

Falling prices

Another element that played in the decision of OPEC+, according to the UBS expert, “some relief” strict health restrictions in China, likely to alleviate market concerns. Demand from this country, which is the largest importer of crude in the world, is scrutinized by investors, and the slightest sign of economic slowdown or renewed epidemic has a direct impact on prices.

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In this gloomy context and in the face of fears of a global recession, Brent North Sea and its American equivalent, WTI, have fallen by around 8% since the last meeting of the alliance in early October.

If OPEC+ opted for caution on Sunday, the alliance could in the coming months “take a more aggressive stance”in a warning to the West which ruffles the cartel by regulating prices, predicts Edoardo Campanella, analyst at UniCredit.

Enough to “aggravate the global energy crisis”, he warns. And arouse the ire of Washington, whose diplomatic efforts with Riyadh to lower prices have failed.

The World with AFP

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