OPEC+ chooses the status quo in an unstable context

AFP, published on Sunday, December 04, 2022 at 2:10 p.m.

The OPEC+ oil-producing countries maintained their production quotas on Sunday in a very uncertain climate, on the eve of the entry into force of new sanctions targeting Russian crude.

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, have agreed to keep the course decided in October of a reduction of two million barrels per day until at the end of 2023, two participants in the meeting told AFP.

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, far from their peaks of more than 130 dollars reached in March following the start of the invasion of Ukraine.

Which, “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 it was ready to meet “at any time” between now and then to take “immediate additional measures” if necessary.

– Spotlight on Russia –

The decision, widely anticipated, was made following a quick meeting by videoconference, the alliance returning to its habits taken during the Covid-19 pandemic following an exceptional meeting in early October in Vienna, headquarters of the cartel.

This status quo is justified in particular by “the uncertainty as to the impact on the production of Russian crude” of the new set of sanctions, commented for AFP Giovanni Stauvono, analyst at UBS.

Russia is headwind once morest the cap on the price of its oil that the European Union, the G7 and Australia have planned to put in place on Monday “or very soon following”.

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.

Objective of these measures: to deprive Moscow of the means to finance its war in Ukraine.

The price of a barrel of Urals crude is currently hovering around $65, barely above the $60 ceiling, implying a 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”, explains Craig Erlam, analyst at Oanda.

– Price at half mast –

Another element which played in the decision of OPEC +, according to the expert of UBS, “a certain reduction” of the strict sanitary restrictions in China, likely to alleviate the concerns of the market.

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.

In this gloomy context and in the face of fears of a global recession, Brent from the 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 might in the coming months “adopt a more aggressive position”, in a warning to the West which bristles the cartel by regulating prices, predicts Edoardo Campanella, analyst at ‘UniCredit.

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