Oil officials from OPEC and Russia will meet on Sunday to discuss production levels, just hours before the European Union begins an embargo on Russian oil and amid intense talks to Kremlin crude oil price cap.
With so much uncertainty, the group known as OPEC Plus may choose to hold a stalemate. In October it was fired upon from the White House and other quarters after that announcing a cut of two million barrels per day.
The group may prefer a wait-and-see approach, analysts say, as different forces are at play in the oil markets. The immediate challenges are the European Union embargo on most Russian crude, which begins Monday, and ongoing negotiations in Brussels over a US-led plan to cap the price of Russian oil exported to Russia. other destinations is exported. But those factors are only part of the problem.
Global economic growth is slowing due to higher central bank interest rates, supply disruptions and inflation. At the same time, demand for oil from China, the largest importer of the fuel, has subdued of Covid lockdowns that have demanded a toll on the country’s economy and productive capacity. China’s oil imports will “drop spectacularly” in the coming months, said Viktor Katona, an analyst at Kpler who monitors shipping traffic.
That leaves OPEC Plus and its de facto leader, Saudi Arabia, with a difficult decision to make.
“They haven’t seen this much near-term uncertainty in decades,” said Raad Alkadiri, general manager for energy, climate and resources at Eurasia Group, a political risk firm.
The outcome of the price cap and embargo is hard to predict, but their impact could soon eclipse any move the Organization of the Petroleum Exporting Countries decides to make this weekend – and its members also risk sharing some of the criticism in the west as prices rise.
“It feels like a time when OPEC Plus would rather be in the background than in the spotlight,” said Richard Bronze, chief geopolitics at research firm Energy Aspects.
Still, despite pressure from the Biden administration to increase production to lower gasoline prices, the cut OPEC Plus announced in October should dampen hopes that Saudi Arabia and its allies will act anything but in their best interests, analysts say . Their primary goal is to keep the oil price from falling.
Prince Abdulaziz bin Salman, the Saudi oil minister, even recently warned that the group remained “ready to intervene” by reducing supply to raise prices. Analysts say if oil prices fall in the coming weeks, OPEC Plus will not hesitate to cut production in January or February.
“I don’t think there is anything stopping OPEC from taking oil off the market if they want to,” said Mr. Alkadiri.
The war in Ukraine, following massive disruptions to the oil and gas industry from Covid global shutdowns, has created an opportunity for the Saudis and their OPEC allies.
With uncertainty over supplies from Russia, one of the world’s major energy producers, Saudi Arabia’s ability to produce additional oil has rarely been more important. This feature, along with relatively high oil prices, now about $87 a barrel for Brent oil and $81 for West Texas Intermediate, gives Crown Prince Mohammed bin Salman, the kingdom’s chief policymaker, the confidence and revenue to make a to pursue a more independent political course. of Washington than its predecessors.
But the inclination of Western governments to intervene in energy markets, an area OPEC says falls within its remit, seems stronger than at any time in many years.
Many traders and investors are skeptical about whether the price cap and Russian oil embargo will be effective. But those moves threaten the Saudis and other producers, analysts said, because they could turn into a form of buyer’s cartel, turning the tables on OPEC. The concern is that these Western initiatives could result in “the ability to determine what kind of oil is good oil,” and how much it should cost, said Karen E. Young, a senior researcher at Columbia University’s Center on Energy Policy. .
What seems likely is that tensions between the West and the Saudis and their allies will continue. Europe will want Middle Eastern producers to help replace lost Russian oil. But the Saudis seem unlikely to want to side with Russia, which has been a useful ally on oil matters since reaching a deal with OPEC in 2016. Before that, Moscow took advantage of OPEC’s production cuts to sell more of its own oil. .
Europe faces a truly gigantic task. First, it must replace a major source of crude oil when Russia’s embargo takes effect Monday; then, in February, the embargo is extended to Russia’s refined products, such as diesel. Much of the conversion is already taking place, with tankers bringing oil to Europe from the United States, Brazil, Guyana and the Middle East.
For this reason, analysts say, Europe can escape major problems – at least in the early days. “There may be some disruption in the early days,” said Josh Folds, an analyst at FGE, a consulting firm. He said the plan to phase out Russian refined products in February could create bigger problems, especially for diesel, which Europe imports in large quantities from Russia.
Oil markets were also calm, staying just below $90 a barrel of Brent oil, the international benchmark, a price point analysts say the Saudis are willing to defend.
But a lot can go wrong too. The global oil trade is being diverted, often with much longer voyages, almost putting the shipping fleet under strain. And while it’s widely believed that Russia’s President Vladimir V. Putin will allow operations to continue as usual while the embargo and price cap take effect, some analysts worry he could begin withholding or blocking oil. using the fuel as a weapon. in the war in Ukraine, just as he did by cutting off supplies of natural gas to Europe.
“We have increasingly seen Russia doing things that are more politically driven than economics when it comes to energy exports,” said Mr. Bronze.