Cartel opts against
raising production even
as price cap on Russian
oil threatens disruption
BY BENOIT FAUCON
AND SUMMER SAID
OPEC+ said it would lock in
current production levels, a
pause that suggests the
world’s leading oil producers
are uncertain about the direction of crude prices with a
price cap on Russia’s petroleum exports set to take effect.
The decision on Sunday allows the Organization of the
Petroleum Exporting Countries
and a group of producers led
by Russia—collectively known
as OPEC+—to take more time
to assess the market impact of
a European Union and Group
of Seven price cap of $60 a
barrel on Moscow’s oil, which
is intended to crimp Russia’s
revenue for the Ukraine war. It
locks in a 2 million-barrels-aday production cut decided in
October.
The cap is set to go into effect on Monday, with both oil
traders and government energy officials uncertain about
how it will affect the market.
An EU ban on most imports of
Russian oil begins the same
day. Then, on Thursday, Chinese President Xi Jinping is expected to travel to Saudi Arabia, where energy markets are
set to be on the agenda in discussions between the world’s
largest oil importer and largest
oil exporter, respectively.
Also coming up as soon as
Monday: Saudi Arabia is expected to announce its price for spot-market customers in
Europe, Asia and the U.S.,
which will be closely watched
for signs of the kingdom’s own
view of the market.
OPEC had considered an array of options before Sunday’s
unusual meeting, which was
abruptly changed to a virtual
gathering after initially being
billed as in-person. OPEC normally meets during the workweek, but this meeting was
scheduled for the weekend
ahead of the price cap and EU
embargo, without explanation.
Some members had advocated for a production increase heading into the meeting, pointing to the potential
for disruptions of Russian oil
that some analysts put at 1
million to 1.5 million barrels a
day following the price cap.
Russian officials on Sunday reiterated that they won’t trade
any oil at all with nations that
implement the price cap.
But in the days before the
meeting, a consensus formed
that it wasn’t the right time to
increase output, OPEC delegates said. Prices have fallen
13% in the past month and
dropped 5% in one day last
month when The Wall Street
Journal and other organizations reported on talks of an
output increase.
Prices have since stabilized,
but Brent crude, the international benchmark, was at
$85.42 on Friday, and West
Texas Intermediate, the U.S.
benchmark, was at $80.34—
far below the $90 a barrel
level where some oil-market
analysts say the group wants
to see prices.
Some OPEC members, including Saudi Energy Minister
Prince Abdulaziz bin Salman,
floated the idea of another
production cut, following the 2
million-barrels-a-day cut in
October that surprised the
White House and angered
much of Washington. A cut
would have shown that OPEC+
was concerned about Chinese
lockdowns designed to stop a
resurgent Covid-19 outbreak
and their effect on demandworries that have pulled oil
prices down in recent days.
OPEC and oil traders have
reacted with uncertainty to
the G-7 and EU price cap. The
U.S. and its allies designed the
price to cut into Moscow’s oil
revenue while keeping Russian
oil, a key part of global supply,
available on the market. It
aims to take advantage of the
concentration of key maritime
services in the West to try to
curb Moscow’s ability to wage
war in Ukraine.
Oil prices also fell Friday
after the EU agreed to the cap,
as traders discounted fears the
mechanism would force much
Russian oil out of the market
and cause a supply issue. Russian crude has traded at a
steep discount this year, with
Argus Media, which assesses
commodity prices, pegging the
price at about $48 a barrel.
Still, OPEC delegates have
said its production plans may
be raised early next year. They
said they trust estimates that
Russian oil exports could fall
by over 1 million barrels a day
due to the price cap. The prediction is consistent with the
International Energy Agency,
which advises consumer nations, and foresees a decline of
1.4 million barrels a day. Russian oil production stood at
9.9 million barrels a day in October.
Helima Croft, the chief
commodities strategist at Canadian broker RBC, said Russia may well follow through
on its threats to stop selling
to buyers implementing the
price cap. “To date, Moscow
has followed through with
multiple disruption threats,”
she said.
Meanwhile, Srijan Katyal,
global head of strategy at Emirati broker ADSS, said fears of
a global recession and inflation rates could send oil prices
down into the lower $60s.
The alliance isn’t planning
to review its production until
its next meeting, on June 4.
But OPEC said Sunday it was
ready “to meet at any time
and take immediate additional
measures to address market
developments” if needed.
OPEC+’s decision to cut
production in October angered
the White House and congressional Democrats, who said it
undermined global efforts to
blunt Russia’s war in Ukraine
and viewed it as a political
slap in the face to President
Biden ahead of midterm elections. But U.S. officials have
said privately in recent days
they wouldn’t complain to the
cartel if it kept curbs, as
prices have eased significantly,
according to people familiar
with the matter.
OPEC delegates said they
didn’t have more clarity Sunday on how a Russian oil price
cap would affect the market
than they did in October, when
they announced the production cut. Back then, on Oct. 5,
Prince Abdulaziz said he had
never encountered a more uncertain period in the oil market in his career.
“We don’t have a crystal
ball,” he said then. “It is making it extremely complex and
tough and frustrating for all of
us here.