Opec+ may keep production steady at December 4 meeting, analysts say

Oil prices have been under pressure as top crude importer China imposes fresh lockdowns

The logo of the Organisation of the Petroleum Exporting Countries at its headquarters in Vienna. Reuters

The Opec+ alliance of 23 oil producing countries will most likely hold production steady following its meeting on Sunday, analysts say, as markets brace for the impact of sanctions on Russia’s crude exports.

The group’s last meeting this year comes against the backdrop of falling crude prices as fresh Covid-19 lockdowns and restrictions in China — the world’s second-largest economy and top crude importer — weigh heavily on investor sentiment.

Brent crude, the benchmark for two thirds of the world’s oil, is down roughly 10 per cent since the October 5 meeting, when the Opec+ decided to slash collective output by 2 million barrels per day amid concerns over a global economic slowdown.

The Opec+ has reportedly changed its plans for the meeting to be an online event now, which investors see as a sign that no major output decision will be taken this time.

The gathering had been scheduled to be conducted in person in Vienna.

“It wouldn't come as a surprise for Opec+ to hold off on this occasion and wait until everything becomes clearer on the price cap and China,” said Craig Erlam, senior market analyst at Oanda.

“Nor would it be alarming for the alliance to wait a couple of extra days for details on the cap … this may be why they've opted for a virtual meeting as it offers more flexibility.”

EU governments have so far failed to agree on a price cap as Poland and several other countries insist on a cap lower than the Group of Seven advanced economies’ proposal of $65 to $70 a barrel.

“The EU proposed price range is higher than the currently discounted Ural price and is seen to have no major impact on supply,” Abu Dhabi Commercial Bank said in a research note.

“Uncertainty remains over whether an agreement will be reached before the kick-in of EU sanctions on Russian oil or the Opec+ meeting.”

An EU embargo on seaborne Russian crude exports is expected to come into effect on December 5 — a day after the Opec+ meeting — along with the price cap.

UBS, which expects oil to rebound to $100 a barrel in the coming months, said markets would be tight given that crude oil stocks in the Organisation for Economic Co-operation and Development countries are at an 18-year low.

“We are somewhat surprised to have seen such a major liquidation in crude oil futures and options,” UBS strategists said.

Once the EU embargoes come into effect, an additional 1.1 million bpd of crude and 1 million bpd of oil products currently going to EU countries will have to find new markets, according to the International Energy Agency.

Russian oil exports rose to 7.7 million bpd in October — up 165,000 bpd from the previous month — on higher shipments to the EU, China and India, the Paris-based agency said in its latest oil market report.

Earlier this month, Saudi Arabia denied the possibility of an output increase and said the Opec+ would continue with its current commitments until end-2023.

“If there is a need to take further measures by reducing production to balance supply and demand, we always remain ready to intervene,” Saudi Energy Minister Prince Abdulaziz bin Salman was quoted as saying by the Saudi Press Agency.

His comments came in response to a Wall Street Journal report stating that Saudi Arabia, the world’s largest crude exporter, was considering raising output targets by 500,000 bpd at this week's meeting.