Opec keeps output unchanged but ready to act as Russia oil embargo nears

The oil market could look quite different by early 2023, with several potentially historic shifts in supply and demand unfolding in the coming days and weeks. 

As Opec+ ministers convened their video conference on Sunday, officials in Shanghai had just eased some of their Covid-19 restrictions, joining other top-tier Chinese cities as authorities accelerate a shift towards reopening the economy after thousands of demonstrators took to the streets. 

Top government officials over the past week have signalled a transition away from the harshest containment measures, which have weighed on the economy in the world’s largest oil importer. 

On Monday, the EU will ban most seaborne imports of Russian crude and block anyone else from using the region’s shipping or insurance services for purchases of Russian oil, unless it’s done so below a $60-a-barrel price cap. 

The embargo follows an agreement by the US, Europe and the G7 last week to cap the price of Russia’s oil exports in a bid to limit earnings that support its budget and the invasion of Ukraine.

It’s unclear to what extent those measures will curtail Russian exports. The price cap is comfortably above the $50 that the country’s flagship Urals grade of crude currently trades at, according to data from Argus Media. Yet Moscow has said it would rather cut production than sell oil to anyone that adopts the price cap.

With these powerful forces poised to push oil markets in unpredictable directions, Opec watchers said the group’s decision was understandable. 

“Opec+ rolled over the existing quotas as expected amid uncertainty around Russian flows following the price cap, and a weaker China,” said Amrita Sen, chief oil analyst and co-founder at consultant Energy Aspects. “The group will continue to monitor markets and should fundamentals deteriorate they will meet prior to June — currently the scheduled next ministerial meeting.”

The meeting on Sunday was a calmer affair than the last one back in October, which created a diplomatic spat. President Joe Biden slammed Opec+ for the 2-million-barrel cutback, accusing Riyadh of aiding Russia’s war in Ukraine by bolstering prices. Since then, the market’s fluctuations have given the group a sense of vindication. 

The cut “was purely driven by market considerations, and recognised in retrospect by the market participants to have been the necessary and the right course of action towards stabilising global oil markets,” Opec said on Sunday.

Bloomberg News. More stories like this are available on bloomberg.com