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The Saudi-led OPEC oil cartel and oil-producing allies including Russia are expected to decide how much oil is supplied to the global economy, amid uncertainty over weak Chinese demand and the impact of new Western sanctions on Russia, which could require a significant amount of oil. qiut the market.
The 23-nation OPEC+ alliance will meet on Sunday, a day ahead of plans to begin two measures aimed at hitting Moscow’s oil revenues in response to the war in Ukraine.
These are the EU’s boycott of most Russian oil, and the EU and G7 price ceiling of $60 a barrel on Russian exports.
Russia rejected the price cap approved on Friday and threatened to stop supplies to countries that recognized it.
Oil prices have been trading lower on concerns that the coronavirus outbreak and China’s strict Covid-free restrictions will reduce fuel demand in one of the world’s major economies.
Fears of recession in the U.S. and Europe also raised the prospect of lower demand for gasoline and other fuels made from crude oil.
This uncertainty is why OPEC+ decided in October to cut production by 2 million barrels per day starting in November, which some saw as a possible move to help Russia survive the European embargo.
There are some limitations to this impact, as OPEC+ countries have been unable to meet their quotas.
Oil prices have fallen since summer highs as the global economy slows, with international benchmark Brent crude settling at $85.42 a barrel on Friday, down from $98 a month ago.
On the other hand, price caps and an EU boycott could keep unknown quantities of Russian oil on the global market, tightening supply and driving up prices.
To prevent a sudden loss of Russian crude, the price cap allows shipping lines and insurers to ship Russian oil to non-Western countries that meet or fall below that threshold. Most of the world’s tanker fleet is insured by G7 or EU insurers.
Analysts say Russia could circumvent the cap, as Iran and Venezuela have done, by organizing its own insurance and using the world’s mysterious fleet of off-the-books tankers, but that would be costly and cumbersome.
Faced with these uncertainties in the global oil market, OPEC oil ministers led by Saudi Arabia may maintain production levels unchanged or cut production again to prevent further price declines. Low prices mean less revenue for governments in producing countries.
Gary Peach, oil market analyst at Energy Intelligence, said: “We think the meeting will be fairly short and the alliance will stick to its current production target.”
On the other hand, analysts at Clearview Energy Partners expect OPEC+ to announce production cuts of 1 million barrels per day. Some members are underproducing, so this is more likely to equate to a cut of around 580,000 barrels per day.
Jacques Rousseau, managing director of Clearview Energy Partners, said that even taking into account the European Union’s ban on Russian oil, which is expected to reduce the Russian oil market by another 1 million barrels, such a large cut will not cause problems for global supply.
Petroleum use fell in winter, partly because fewer people were driving.
But the G7 price cap could prompt Russia to retaliate by taking more oil off the market.
Kevin Book, another managing director of Clearview, said the Saudis “may share the Kremlin’s interest in dismantling the G7’s growing buyer cartel”.
The cap of $60 a barrel is close to the current price of Russian oil, meaning Moscow could keep selling while rejecting the cap in principle.
“If Russia ends up extracting more than about 1 million barrels a day, then the world is going to have an oil shortage and that needs to be offset somewhere, whether it’s from OPEC or not,” Rousseau said.
“That will be the key factor – figuring out how much Russian oil has really left the market.”
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