FRANKFURT, Germany (AP) — The Saudi Arabia-led OPEC oil cartel and allied producers, including Russia, have not changed their targets for shipping oil to the global economy amid a… uncertainty about the impact of new Western sanctions against Russia that could take significant amounts of oil off the market.
The decision at a meeting of oil ministers on Sunday comes a day before the planned start of two measures aimed at hitting Russia’s oil revenues in response to its invasion of Ukraine. These are: a European Union boycott of most Russian oil and a $60 a barrel price cap on Russian exports imposed by the EU and the Group of Seven democracies.
It is not yet clear how much Russian oil the two sanctions measures could remove from the world market, which would tighten supply and push up prices. The world’s second-largest oil producer was able to reroute much, but not all, of its former European shipments to customers in India, China and Turkey. The impact of the price cap is also in the air, as Russia has said it may simply stop deliveries to countries that are within the limit, but will likely also find ways to circumvent the cap for some shipments. .
On the other side, oil is trading at lower prices on fears that coronavirus outbreaks and China’s strict zero-COVID restrictions could reduce demand for fuel in one of the world’s major economies. Concerns about recessions in the United States and Europe also raise the prospect of falling demand for gasoline and other fuels made from crude oil.
This uncertainty is why the OPEC+ alliance in October gave a production cut of 2 million barrels per day from November, a cut that remains in effect. Analysts say that took less than the full amount off the market since OPEC+ members can’t already meet their full production quotas.
With the global economy slowing, oil prices have fallen from summer highs, with the international benchmark Brent index closing Friday at $85.42 a barrel, down from $98 a month ago. This has lowered gasoline prices for drivers in the United States and around the world.
Average gasoline prices have fallen in recent days for U.S. drivers to $3.41 a gallon, according to the AAA Auto Club Federation.
To avoid a sudden loss of Russian crude, the price cap allows shipping and insurance companies to transport Russian oil to non-Western countries at or below this threshold. Most of the world’s tanker fleet is covered by G-7 or EU insurers.
Russia would likely try to evade the cap by arranging its own insurance and using the world’s clandestine tanker fleet, as Iran and Venezuela have done, but that would be costly and cumbersome, analysts say.
Faced with these uncertainties for the global oil market, Saudi Arabia-led OPEC oil ministers could leave production levels unchanged or cut production again to prevent prices from falling further. Low prices mean less revenue for governments in producing countries.
Maintaining OPEC’s production targets makes sense because “at this time I think they consider the market to be properly priced, properly supplied and there is no reason to rock the boat,” he said. said Gary Peach, oil markets analyst at Energy Intelligence.
The G-7 price cap could prompt Russia to retaliate and pull oil from the market. But the $60-a-barrel cap is close to the current price of Russian oil, meaning Moscow could continue to sell while rejecting the cap in principle. Oil consumption also drops in the winter, partly because fewer people are driving.
“If Russia ends up taking more oil than about a million barrels a day, then the world is running out of oil, and there would have to be compensation somewhere, whether it’s OPEC or no,” said Jacques Rousseau, managing director of Clearview Energy Partners. “That will be the key factor – it will be determining how much Russian oil actually leaves the market.”