FRANKFURT, Germany ( Associated Press) — The OPEC oil cartel led by Saudi Arabia and allied producing countries like Russia were scrambling to decide how much crude to supply to the global economy amid weak demand in China and uncertainty over the impact of new Western oil have to supply. Sanctions against Russia that could take a significant amount of oil off the market.
The 23-nation OPEC+ alliance was due to meet on Sunday, a day before two measures designed to limit Moscow’s oil revenues in response to its war in Ukraine. They were followed by an EU boycott of most Russian crude oil and a $60 per barrel price cap for Russian exports, imposed by the European Union and the grouping of the world’s 7 most developed democracies.
Russia on Friday rejected the agreed price cap and threatened to cut off supplies to countries that supported it.
Oil is trading lower on fears that the coronavirus outbreak and China’s strict “zero COVID” policy restrictions could reduce fuel demand in one of the world’s biggest economies. Fears of a recession in the US and Europe are also likely to reduce demand for gasoline and other petroleum fuels.
That uncertainty is what led OPEC+ to agree in October to cut production by 2 million barrels a day from November, which some interpreted as a possible move to help Russia with European sanctions. This had limited impact as OPEC+ countries were already having trouble meeting their quotas.
Crude oil prices are falling from their summer highs as the global economy slows. Benchmark Brent closed at $85.42 a barrel on Friday, compared to $98 a barrel a month ago. This drove down gasoline prices in the United States and around the world.
On the other hand, EU price caps and boycotts could take an unknown amount of Russian crude out of the global market, reducing supply and driving up prices. To prevent sudden losses for Russian oil, the price cap allows freight forwarders and insurance companies to move Russian crude to non-Western countries or below that amount. Most of the world’s tanker fleet is covered by G7 or EU insurers.
Analysts say Russia could try to circumvent the cap by arranging its own insurance and using tight-lipped fleets of unregistered tankers, as Venezuela and Iran have done, but this would be costly and time-consuming. is likely to happen.
Faced with these uncertainties for the global oil market, OPEC ministers led by Saudi Arabia may maintain production levels or reduce them again to prevent prices from falling further. Lower prices mean less revenue for governments and producing countries.
“We expect the meeting to be very brief and the alliance to stick to current production targets,” said Gary Peach, market analyst at Energy Intelligence. Staying the course makes sense “even more so because crude oil is $87 per barrel (before Friday), which is a good price for all (…). Of course $98 is better, but right now I think That they see the market as the right price, the right supply, and there’s no reason to rock the boat.”
In contrast, analysts polled by Clearview Energy Partners expect OPEC+ to announce an output cut of one million barrels per day. Some members are producing below the cap, leading to a shortfall of about 580,000 barrels a day.
Taking into account the EU ban on Russian crude, a cut of that magnitude would not pose a problem for global supply, said Jacques Rousseau, managing director at Clearview Energy Partners, which is expected to take another million barrels from the market. Crude oil consumption drops in the winter, partly because fewer people drive.
But the limit set by the G7 could prompt Russia to retaliate and take more crude off the market. “The Saudis are likely to share the Kremlin’s interest in crushing the cartel of G7 buyers,” said Kevin Book, another managing director at Clearview.
The $60 per barrel cap is close to the current price of Russian oil, which means Moscow could in theory continue to sell even if it rejects the cap.
“If Russia stops extracting more than about a million barrels of oil a day, the world will be short of oil and there will have to be compensation somewhere, whether it’s from OPEC or not,” Russo said. Told. “That’s going to be the key factor in determining exactly how much Russian crude is going to come off the market.”
Bussewitz reported from New York.