OPEC+, a gaggle of 23 oil-producing nations led by Saudi Arabia and Russia, will convene on Sunday to come to a decision on the subsequent phase of production policy.
Bloomberg | Bloomberg | Getty Images
OPEC and non-OPEC oil producers could impose deeper oil output cuts on Sunday, energy analysts said, because the influential energy alliance weighs the impact of a pending ban on Russia’s crude exports and a possible price cap on Russian oil.
OPEC+, a gaggle of 23 oil-producing nations led by Saudi Arabia and Russia, will convene on Sunday to come to a decision on the subsequent phase of production policy.
The highly anticipated meeting comes ahead of probably disruptive sanctions on Russian oil, weakening crude demand in China and mounting fears of a recession.
Claudio Galimberti, senior vice chairman of research at energy consultancy Rystad, told CNBC from OPEC’s headquarters in Vienna, Austria, that he believes the group “could be higher off to remain the course” and roll over existing production policy.
“OPEC+ has been rumored to think about a cut on the idea of demand weakness, specifically in China, over the past few days. Yet, China’s traffic nationwide is just not down dramatically,” Galimberti said.
Energy market participants remain wary in regards to the European Union’s sanctions on the purchases of the Kremlin’s seaborne crude exports on Dec. 5, while the prospect of a G-7 price cap on Russian oil is one other source of uncertainty.
The 27-nation EU bloc agreed in June to ban the acquisition of Russian seaborne crude from Dec. 5 as a part of a concerted effort to curtail the Kremlin’s war chest following Moscow’s invasion of Ukraine.
Concern that an outright ban on Russian crude imports could send oil prices soaring, nevertheless, prompted the G-7 to think about a price cap on the quantity it can pay for Russian oil.
No formal agreement has yet been reached, although Reuters reported Thursday that EU governments had tentatively agreed to a $60 barrel price cap on Russian seaborne oil.
“The opposite factor OPEC will need to think about is indeed the value cap,” Galimberti said. “It’s still up within the air, and this adds to the uncertainty.”
The Kremlin has previously warned that any try to impose a price cap on Russian oil will cause more harm than good.
‘A lot uncertainty’
The energy alliance recently hinted it could impose deeper output cuts to spur a recovery in crude prices. This signal got here despite a report from The Wall Street Journal suggesting an output increase of 500,000 barrels per day was under discussion for Sunday.
OPEC+ agreed in early October to scale back production by 2 million barrels per day from November. It got here despite calls from the U.S. for OPEC+ to pump more to lower fuel prices and help the worldwide economy.
Bloomberg | Bloomberg | Getty Images
Speaking earlier this week, RBC Capital Markets’ Helima Croft said there was no expectation of a production increase from the upcoming OPEC+ meeting and a “significant likelihood” of a deeper output cut.
“There may be a lot uncertainty,” Croft told CNBC’s “Squawk Box” on Tuesday. OPEC delegates “need to think about what happens with China but additionally what happens with Russian production.”
“My expectation immediately is, if prices are flirting with Brent breaking into the 70s, actually OPEC will do a deeper cut, however the query is, how do they think about what will come the subsequent day?” Croft said. “So, I still think it’s up for grabs.”
Oil prices, which have fallen sharply in recent months, were trading barely lower ahead of the meeting.
International Brent crude futures traded 0.2% lower at $87.78 a barrel on Friday morning in London, down from over $123 in early June. U.S. West Texas Intermediate futures, meanwhile, dipped 0.3% to trade at $80.95, in comparison with a level of $122 six months ago.
“Barring any negative surprise during Sunday’s virtual OPEC+ talks and assuming a healthy compromise on Russian oil price cap before the EU sanctions kick in on Monday it’s tempting to audaciously conclude that the underside has been found,” Tamas Varga, analyst at broker PVM Oil Associates, said in a note Thursday.
Varga said oil prices trading below $90 a barrel was “not acceptable” for OPEC and Russia was widely expected to introduce retaliatory measures against those signing up for the G-7 deal.
“Choppy and nervous market conditions will prevail, but the brand new month should bring more joy than November,” he added.
‘High probability’ of an output cut
Jeff Currie, global head of commodities at Goldman Sachs, said OPEC ministers would want to debate whether to accommodate further weakness in demand in China.
“They got to cope with the undeniable fact that, hey, demand is down in China, prices are reflecting it, and do they accommodate that weakness in demand?” Currie told CNBC’s Steve Sedgwick on Tuesday.
“I feel there’s a high probability that we do see a cut,” he added.
Analysts at political risk consultancy Eurasia Group said that lower oil prices “heighten the danger” of a recent OPEC+ output cut.
“Ultimately, the choice will depend upon the trajectory of the oil price when OPEC+ meets and the way much disruption is clear in markets due to EU sanctions,” Eurasia Group analysts led by Raad Alkadiri said Monday in a research note.
If Brent crude futures dip below $80 a barrel for a sustained period ahead of the meeting, Eurasia Group said OPEC+ leaders could push for one more production cut to shore up prices and convey Brent futures back as much as around $90 — a level “that they seem to favor.”
