Opec cartel maintains oil targets amid uncertainty over Russian sanctions

The Saudi-led Opec oil cartel and allied producers including Russia have not changed their targets for shipping oil to the global economy amid uncertainty over the impact of new western sanctions against Russia that could take significant amounts of oil off the market.

The decision at a meeting of oil ministers yesterday came a day ahead of the planned start of two measures aimed at hitting Russia’s oil earnings in response to its invasion of Ukraine.

These are a European Union boycott of most Russian oil and a US$60 per barrel price cap on Russian exports imposed by the EU, G7 nations and Australia.

It is not yet clear how much Russian oil the two sanctions measures could take off the global market, which would tighten supply and drive up prices.

The world’s number two oil producer has been able to reroute much, but not all, of its former Europe shipments to customers in India, China and Turkey.

The impact of the price cap is also up in the air because Russia has said it could simply halt deliveries to countries that observe the limit but would be likely to find ways to evade the cap for some shipments.

Meanwhile, oil has been trading at lower prices over fears that coronavirus outbreaks and China’s zero Covid restrictions would reduce demand for fuel in one of the world’s major economies.

Concerns about recessions in the US and Europe also raise the prospect of lower demand for petrol and other fuel made from crude oil.

That uncertainty is the reason the Opec+ alliance gave in October for slashing production by two million barrels per day starting in November, a cut that remains in effect.

Analysts say this took less than the full amount off the market since Opec+ members already cannot meet their full production quotas.

With the global economy slowing, oil prices have been falling since summertime highs, with international benchmark Brent closing on Friday at $85.42 per barrel, down from $98 a month ago.

This eased petrol prices for drivers in the US and around the world.

To prevent a sudden loss of Russian crude, the price cap allows shipping and insurance companies to transport Russian oil to non-western nations at or below that threshold.

Most of the world’s tanker fleet is covered by insurers in the G7 or EU.

Russia would be likely to try to evade the cap by organising its own insurance and using the world’s shadowy fleet of off-the-books tankers, as Iran and Venezuela have done, but that would be costly and cumbersome, analysts said.

Facing these uncertainties for the global oil market, Opec oil ministers led by Saudi Arabia could leave production levels unchanged or cut output again to keep prices from declining further. Low prices mean less revenue for governments of producing nations.

Maintaining Opec production targets makes sense because “right now I think they see the market as adequately priced, adequately supplied, and there’s no reason to rock the boat,” said Gary Peach, oil markets analyst with Energy Intelligence.