The Opec+ alliance of 23 oil-producing countries will stick to its oil production targets, the group said on Sunday — the eve of EU sanctions on Russian crude coming into effect that could reduce global crude supplies.
At its last meeting in October, Opec+ decided to slash its collective output by 2 million barrels per day until the end of 2023, citing concerns about a global economic slowdown.
In a statement, the Opec+ said it was ready to address "market developments" and support the "balance of the oil market and its stability if necessary".
“By keeping production flat, Opec+ have signalled a measured approach, not guided by speculation related to a demand slump in China, a weakened dollar, or even the relatively low prices for oil seen in recent weeks,” Srijan Katyal, global head of strategy and trading services at ADSS, said.
“Another area to watch closely is the Russian oil price cap ... this will be a key driver for oil prices over the winter months.”
On Friday, the G7 and Australia agreed on a $60 price cap on Russian seaborne crude oil following weeks of negotiations with Poland and other Baltic states.
The price cap aims to reduce Moscow’s oil and gas revenue, while maintaining adequate supplies of crude on the global energy market, preventing a surge in crude prices after an EU embargo on Russian seaborne crude comes into effect on December 5.
Russia, which has been selling discounted barrels of crude to India and China, has said that it would not sell its oil under the G7 cap.
“The price cap on Russian crude oil will draw attention as it could be difficult to enforce,” said Edward Moya, senior market analyst at Oanda.
The EU sanctions, including a ban on Russian crude products from February 5, mean 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.
All decisions taken by the Opec+ are based on the "needs of the global oil market in a bid to ensure stability", Kuwait's Oil Minister Bader Al Mulla was quoted as saying by official news agency Kuna.
The group will continue to "monitor" global market developments in order to determine appropriate measures, Mr Al Mulla said.
Oil prices fell below $90 a barrel last month as China, the world’s second-largest economy and top crude importer, grapples with near record Covid cases, which had triggered fears that the country would respond with extensive lockdowns.
Brent crude, the benchmark for two thirds of the world’s oil, has risen about 6 per cent since hitting a low of $81 last week amid an easing of curbs in major cities, including Beijing.
China is in a new stage of its fight against Covid-19 as several cities relax restrictions after protests at the weekend, the country's Vice Premier said on Wednesday.
The country "is facing a new situation and new tasks in epidemic control" as the Omicron variant weakens and the vaccination rate increases, Sun Chunlan, who also oversees China's Covid response, said in a meeting of the National Health Commission.
In October, the International Monetary Fund (IMF) reduced its growth forecast for China’s economy in 2022 to 3.2 per cent from its earlier estimate of 3.3 per cent. The Washington-based lender also cut China’s forecast for next year to 4.4 per cent from 4.6 per cent.
“The crude demand outlook could hinge on China and if they continue to soften their Covid policy and if their trade data deteriorates more than expected,” Mr Moya said.
Swiss lender UBS, which expects oil to rebound to $100 a barrel in the coming months, believes markets will be tight given that crude oil stocks in the Organisation for Economic Co-operation and Development countries are at an 18-year low.
Last month, Opec slightly lowered its global oil demand forecast for this year and next year following a steep reduction in October, citing China’s zero-Covid policy, geopolitical uncertainties and weaker economic activity.
Global oil demand will increase by 2.5 million bpd this year, lower than Opec’s previous estimate of 2.6 million bpd. World oil demand in 2023 will grow by 2.2 million bpd, down from the group's earlier estimate of 2.3 million bpd.
“Crude’s fundamentals have started to turn green and if that momentum continues, Brent shouldn’t have trouble getting above the $90 level,” Mr Moya said.