Opec+ says ready to adjust oil output as Russia embargo looms

Opec and its allies vowed on Sunday to stand ready to take “immediate” action to stabilise global oil markets a day ahead of the start of sweeping new western restrictions on Russia’s oil exports.

Opec+, which is led by Saudi Arabia and Russia, decided not to make any immediate changes to the group’s production targets, but said the oil producers’ cartel was ready to “meet at any time” and could “take immediate additional measures”.

The group’s online meeting came a day ahead of what will be one of the most dramatic shifts in global oil markets in decades, when the EU will bar seaborne Russian oil imports in retaliation for Moscow’s invasion of Ukraine.

At the same time G7 leaders have agreed to launch a so-called price cap that aims to keep Russian oil flowing to countries such as India and China to avoid creating widespread shortages, but only if the crude is sold at less than $60 a barrel to crimp Moscow’s revenues.

“If markets move adversely Opec+ will intervene,” said Christyan Malek at JPMorgan. “It has made clear it wants to balance the market proactively and pre-emptively.”

Russia has repeatedly said it will not sell any oil to countries utilising the cap, and has instead quietly set about acquiring more than 100 oil tankers to form a “shadow fleet” of vessels to try and keep its oil flowing despite the western restrictions.

But traders still expect Russia’s oil exports to fall in the coming months as it is probably short of tankers and may struggle to find enough new buyers outside the EU.

Russian deputy prime minister Alexander Novak reiterated on Sunday that Moscow would not export oil that was subject to any western-imposed price cap, “even if we have to cut production somewhat”.

“We will sell oil and petroleum products to those countries that will work with us on market terms, even if we have to cut production somewhat,” Novak said.

The scale of the decline in Russian oil exports may determine whether oil prices soar or sink in 2023. Producers such as Opec+ are also worried about slowing demand if big economies fall into recession.

Helima Croft, a former CIA analyst now at RBC Capital Markets, said: “We simply do not know if the price cap will launch as planned and avert a market disruption or whether Moscow has something more disruptive in store.”

Analysts said it made sense for Opec+ to make no big changes to production policy before the full impact of the western restrictions on Russian oil could be ascertained in the coming weeks.

Amrita Sen at Energy Aspects, a consultancy, said Opec+ was facing a challenging market as there was also huge uncertainty around China, the world’s largest oil importer. That increases the likelihood that Opec+ will meet again early in 2023.

Beijing has begun to ease its latest round of demand-sapping lockdowns amid growing protests against the measures, which are expected to drag on economic output.

Opec+ “will continue to monitor markets and should fundamentals deteriorate they will meet prior to June, [which is] currently the scheduled next ministerial meeting”, Sen said.

The next meeting of the Opec Joint Ministerial Monitoring Committee, which has the power to call a production meeting, is due to take place in early February.

Saudi Arabia’s energy minister Prince Abdulaziz bin Salman al-Saud may have had one eye on the reaction of the White House, which in October accused the country of aligning with Russia after leading Opec+ into a substantial cut in production targets of 2mn barrels a day.

The cut came shortly before crucial US midterm elections in which the Biden administration feared gasoline prices would play a big role. Saudi Arabia has always argued that the cuts were solely due to concerns about the impact of a possible future recession on oil demand, but the move damaged relations with the US.

Opec+ alluded to the US opposition in its statement after Sunday’s meeting, saying that it had been “recognised in retrospect by the market participants to have been the necessary and the right course of action”.

Oil prices have not risen as western consumers feared since October, with international benchmark Brent crude holding at about $85 a barrel — roughly the level it traded at before the Opec+ cut and well below its highs immediately after Russia’s invasion of Ukraine, when it jumped to more than $120 a barrel.

Prince Abdulaziz, the half-brother of Crown Prince Mohammed bin Salman — Saudi Arabia’s de facto leader — has indicated in the past that the Gulf state could raise oil production if Russian output fell sharply.

But he has also said the kingdom is prepared to make further cuts, with many analysts expecting Saudi Arabia to try and defend prices should they start to fall. That could be a blow to hopes for lower inflation next year in many economies.

Additional reporting by Polina Ivanova in Berlin and Derek Brower in New York