The fact that OPEC+ has decided to meet virtually this Sunday suggests surprises with regard to oil supply policy are unlikely, Reuters reported today, citing an unnamed source close to the group.
"OPEC+ would rather sit on the bench at this time and assess the outcome of what happens on Monday," the source said, referring to EU discussions of the G7-proposed price cap for Russian oil exports.
The EU first tried to reach an agreement on the cap on Monday but failed as Poland and two Baltic states—Lithuania and Estonia—insisted that the cap was placed much lower than the $65-$70 range suggested by the United States.
Discussions continue, but with the deadline just days away, the chance for success appears slim unless the EU has something to offer to Poland and the Baltics.
Suppose the EU fails to agree on a price cap under the G7 mechanism. In that case, its embargo on Russian crude will come into effect on Monday: a much harsher measure that will see all maritime oil exports from Russia to Europe halted, with a few exceptions.
At their last meeting, which took place in person in Vienna, the members of OPEC+ agreed to reduce oil production by a nominal 2 million barrels daily, which would be an effective 1 million-bpd cut.
Some OPEC+ delegates believe that further cuts may be discussed at the Sunday meeting, per a Bloomberg report, and some analysts agree with them.
According to more unnamed sources quoted by Reuters earlier this week, the more likely scenario is a rollover of the current cuts into next month.
"The current cut of 2 million barrels per day by OPEC+ continues until the end of 2023 and if there is need to take further measures by reducing production to balance supply and demand, we always remain ready to intervene," Saudi energy minister Abdulaziz bin Salman said earlier this month.
By Irina Slav for Oilprice.com
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If the price cap goes ahead simultaneously with the EU banning Russian seaborne oil exports on 5 December, OPEC+ will assess the impact on the global oil market and prices and will act accordingly or as the Saudi Energy Minister Prince Abdulaziz bin Salman made it clear that ‘if there is need to take further measures by reducing production to balance supply and demand, we always remain ready to intervene’.
However, OPEC+ is also aware that the price cap is neither viable nor enforceable. It will lead to shortages in the global oil market and above all Russia will kill it immediately by halting exports to any country or group of countries implementing the cap.
OPEC+ is therefore confident that the market reaction and Russia’s retaliation will be more than enough to offset the impact of the cap thus saving it the need to make another cut so soon after the 2 mbd cut last month.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert