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 on Sunday comes 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 an EU boycott of most Russian oil and a 60 US dollar-per-barrel price cap on Russian exports imposed by the EU and G7.
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 also 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 strict 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 Friday at 85.42 US dollars per barrel, down from 98 US dollars a month ago.
This eased petrol prices for drivers in the US and around the world.
Average petrol prices have fallen for US drivers in recent days to 3.41 US dollars per gallon, according to motoring club federation AAA.
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.
The G7 price cap could prompt Russia to retaliate and take oil off the market. But the cap of 60 US dollars a barrel is near the current price of Russian oil, meaning Moscow could continue to sell while rejecting the cap in principle. Oil use also declines in the winter, in part because fewer people are driving.
“If Russia ends up taking off more oil than about a million barrels per day, then the world becomes short on oil, and there would need to be an offset somewhere, whether that’s from Opec or not,” said Jacques Rousseau, managing director at Clearview Energy Partners.
“That’s going to be the key factor, is to figure out how much Russian oil is really leaving the market.”