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Caution to Dictate Opec's Next Move

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As oil market uncertainties pile up and prices soften, Opec-plus is likely to take a cautious approach with its supply policy at its Dec. 4 meeting. The most likely path forward is to keep its current pact in place, maintaining the group's headline production cut of 2 million barrels per day for now. With demand concerns prompting Brent to slump to the mid $80s recently, Opec-plus members are relieved that they made the pre-emptive decision in early October to cut supply. Markets may ultimately need a deeper cut depending on how recessionary pressures impact demand, but this seems less likely from Opec-plus for now. Indeed, its decision to hold the Dec. 4 ministerial meeting virtually rather than in person suggests it wants to avoid the spotlight and manage expectations around the introduction of any major changes to its supply policy. Some Opec-plus delegates believe the group needs more time to review and fully understand the impact of several developments that could swing oil markets in the near term before making any amendments. These include the trajectory of the global economy, the future of China's "zero-Covid" policy, and the effect of the EU's embargo on seaborne Russian oil imports and an associated price cap on Russian crude sales. Two Opec-plus delegates told Energy Intelligence that keeping the current production policy in place is the most probable course. The EU continues to hold meetings to decide on the level of the price cap, which will take effect on Dec. 5. Reports indicate it may be set as high as $60s per barrel, which is not far from the price that Russia is receiving now for its discounted crude from Asian buyers. However, Russia’s Deputy Prime Minister Alexander Novak this week said the price cap could lead to a market deficit and stressed that Russia will not sell oil to countries that implement the cap. Energy Intelligence reckons that EU embargoes on Russian petroleum — including a Feb. 5 import ban on products — and the price cap could result in the loss, over time, of over 1 million b/d of Russian supply — half in crude and half in products.

Topics:
Opec/Opec-Plus, Opec-Plus Supply , Oil Demand, Oil Prices
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