OPEC and its allies, including Russia, said on Sunday they would leave their oil production quotas unchanged. The group, known as OPEC Plus, appears to have decided during a conference call that there was no reason to change policy with so much uncertainty in the oil market.
On Monday, the European Union will begin an embargo on Russian oil as the Group of 7 industrialized countries and their allies impose a price cap of $60 per barrel on Russian crude.
There were several reasons for the producer group to contain the fire. The most important of these are the impending European embargo and the price cap. What the outcome of these initiatives will be for oil markets is yet to be determined, but they could affect millions of barrels of Russian oil per day. OPEC may have decided it was better to collectively keep a low head rather than take the blame if, say, prices rise in the coming days.
The Biden administration had criticized the Saudis, the de facto leaders of OPEC Plus, for orchestrating a production cut of two million barrels per day, or about 2 percent of global oil production, at the group’s last meeting. That announcement, the first major production cut in two years, was seen as an attempt to boost oil prices.
In a press release after Sunday’s meeting, OPEC Plus defended the move, saying the production cut was now recognized by market participants as “necessary and the right course of action”.
Because oil is ordered several weeks in advance, the production cuts announced in October only started to work their way through the market in recent weeks. In addition, releases from the United States strategic stockpile are expiring.
The Saudis, who are taking the largest cuts in production, are likely to want to wait and see whether the production cuts and the end of reserve releases offset weakening demand, especially in China, the world’s largest oil importer, where Covid lockdowns have affected industrial production and general economic activity.
While the full group will not meet again until June 2023, the press release said they were ready “to meet at any time and immediately take additional action to address market developments.”
Brent crude, the international benchmark, was $85.57 a barrel Friday, down from more than $110 in June, while West Texas Intermediate crude is around $80 a barrel. Many analysts say the Saudis are committed to seeking a price of around $90 a barrel of Brent and will cut production regardless of protests from the West if prices fall significantly from that level.
