Cautious Opec-Plus Leaves Oil Output Unchanged

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Opec-plus decided on Sunday to keep its oil production unchanged, in line with market expectations, as the alliance adopted a cautious "wait-and-see" approach amid considerable uncertainties.

The ministers' decision means that a 2 million barrel per day cut in output agreed in October for implementation from November will — at least for now — remain in place until the end of 2023.

The rollover decision had been widely expected after the alliance decided to cancel a previously planned in-person meeting in Vienna and opt for a virtual gathering instead, signaling that changes in production policy were unlikely.

"The market outlook is still very uncertain so it's been decided to keep the agreement with no changes for now and if needed it can be changed in the future," said one Opec-plus delegate after the meeting.

The Opec-plus move did not trigger the same kind of strong reaction seen after the October decision to implement a nominal 2 million b/d cut, which enraged the US.

Diplomatic sources told Energy Intelligence ahead of the meeting that US officials would "understand" if the group opted to maintain the status quo, given the challenges the oil market faces in the weeks ahead.

Opec-plus said in a statement published after Sunday's meeting that the October decision "was purely driven by market considerations."

It added that with the benefit of hindsight, market participants had recognized the earlier decision "to have been the necessary and the right course of action towards stabilizing global oil markets."

Bumpy Road Ahead

Opec-plus is facing multiple uncertainties, most immediately in the form of an EU ban on Russian crude imports and the introduction of an EU/G7 price cap for Russian crude exports using shipping services from those countries.

There are also broader concerns about the health of global demand given economic headwinds, geopolitical tensions and China's Covid-19 restrictions.

Other Opec-plus delegates said Sunday's meeting went smoothly. None of the producers brought up the issue of baseline revisions or raised objections to the rollover of production at previously agreed levels.

The group said it would continue to monitor the market carefully and set the date of the next meeting of its Joint Ministerial Monitoring Committee (JMMC) for Feb. 1.

The next scheduled plenary ministerial meetings will be held on Jun. 3 (Opec) and Jun. 4 (Opec-plus).

Opec-plus member states "reiterated their readiness to meet at any time and take immediate additional measures to address market developments and support the balance of the oil market and its stability if necessary."

With 2022 almost over, Equatorial Guinea is preparing to take over Opec's rotating presidency next year.

Murky Market Outlook

Concerns about the market outlook have helped push benchmark Brent prices below $90 per barrel over the last few weeks, despite the Opec-plus cuts.

On top of general recessionary fears, Beijing's strict stance on pandemic lockdowns has been a key driver of bearish sentiment — although those measures were further eased late last week, following protests across the country.

Crucially, there is still no clarity as to how the European import ban or the accompanying $60/bbl price cap will impact Russian exports or the broader global crude market.

Some analysts believe Russia could be forced to take up to 2 million b/d of production off line.

Energy Intelligence forecasts a loss in Russian production of about 1.5 million over the course of 2023, as a result of cuts in crude and product exports and reduced domestic demand.

However, these are working numbers subject to a range of uncertainties, and the impact may be less severe as markets adjust. The Opec Secretariat has estimated the loss of Russian production at around 850,000 b/d in 2023.

On the demand side, Opec's most recent Monthly Oil Market Report projected that oil demand will grow by 2.55 million b/d this year and by a further 2.24 million b/d next year.

Its forecasters have made significant downward adjustments to their demand projections over the last few months.

Oil Supply, Oil Demand, Crude Oil, Oil Prices, Opec-Plus Supply , Opec/Opec-Plus
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