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The OPEC+ alliance decided to maintain production at current levels, pausing to take stock of a global oil market that’s roiled by uncertainty over Chinese demand and Russian supply.
The 23-nation group, which held a roughly 20-minute online meeting, has only just started implementing the hefty 2 million barrel-a-day reduction agreed at its last gathering in October.
The full impact of that cut is unclear amid severe gyrations in prices. After hitting the lowest level since September on Nov. 28, Brent crude ended up posting its biggest weekly gain in a month.
The volatility has been driven by European Union sanctions and a price cap on crude exports from OPEC+ member Russia, which come into effect on Monday. At the same time, China is tentatively easing the Covid measures that have eroded consumption in the world’s biggest oil importer.
The Organization of Petroleum Exporting Countries and its allies decided earlier this week to hold on online gathering rather than meet in-person at their Vienna headquarters.
The OPEC+ alliance decided to maintain production at current levels, pausing to take stock of a global oil market that’s roiled by uncertainty over Chinese demand and Russian supply.
The 23-nation group, which held a roughly 20-minute online meeting, has only just started implementing the hefty 2 million barrel-a-day reduction agreed at its last gathering in October.
The full impact of that cut is unclear amid severe gyrations in prices. After hitting the lowest level since September on November 28, Brent crude ended up posting its biggest weekly gain in a month.
The volatility has been driven by European Union sanctions and a price cap on crude exports from OPEC+ member Russia, which come into effect on Monday. At the same time, China is tentatively easing the Covid measures that have eroded consumption in the world’s biggest oil importer.
The Organization of Petroleum Exporting Countries and its allies decided earlier this week to hold on online gathering rather than meet in-person at their Vienna headquarters.
The next OPEC+ ministerial meeting is scheduled for 4 June 2023.
But the alliance said it was ready to "meet at any time and take immediate additional measures" to address market developments and support the oil market if necessary.
Spotlight on Russia
On Friday, the EU, G7 and Australia agreed a $60-per-barrel price cap on Russian oil, which will come into effect on Monday or soon after, alongside an EU embargo on maritime deliveries of Russian crude oil.
It will prevent seaborne shipments of Russian crude to the European Union, which account for two thirds of the bloc's oil imports from Russia, an attempt to deprive Moscow's war chest of billions of euros.
While Russia denounced on Saturday the incoming price cap, threatening to suspend deliveries to any country that adopted the measure, Ukraine suggested the cap should have been set even lower.
For OPEC+, the big unknown in the oil equation is how heavily sanctions will hit Russian supply.
"Uncertainty on the impact on Russian oil production coming from the EU ban... and the G7 price cap and some easing of mobility restrictions in China likely supported the decision for a rollover," UBS analyst Giovanni Staunovo said.
An 'uncomfortable position'
Moscow's threat to suspend deliveries to countries abiding by the price cap will put "some in a very uncomfortable position", said OANDA analyst Craig Erlam: "Choosing between losing access to cheap Russian crude or facing G7 sanctions".
Amid economic gloom fuelled by soaring inflation and fears of China's weaker energy demand due to its Covid-related restrictions, the two global crude benchmarks remained close to their lowest level of the year, far from their March peaks.
Since the group's last meeting in early October, Brent North Sea oil and its US equivalent, WTI, have lost more than six percent of their value.
Moving forward, OPEC+ might still feel compelled to adopt "a more aggressive stance" by cutting or threatening to cut production, UniCredit analyst Edoardo Campanella said.
"Russia might also retaliate by leveraging its influence within OPEC+ to push for more production cuts down the road, thus exacerbating the global energy crisis," he added.
