Oil output cuts on the table ahead of Russia sanctions

OPEC+, a group of 23 oil-producing nations led by Saudi Arabia and Russia, will meet on Sunday to decide on the next phase of production policy.

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OPEC and non-OPEC oil producers could impose deeper oil production on Sunday, energy analysts said, as the influential energy alliance weighs the impact of a pending ban on Russia’s crude exports and a possible price cap on Russian oil.

OPEC+, a group of 23 oil-producing nations led by Saudi Arabia and Russia, will meet on Sunday to decide on the next phase of production policy.

The highly anticipated meeting comes ahead of potentially disruptive sanctions on Russian oil, weakening crude demand in China and raising fears of a recession.

Claudio Galimberti, senior vice president of analysis at the energy consultancy Rystad, told CNBC from OPEC’s headquarters in Vienna, Austria, that he believes the group “would be better off staying the course” and rolling over existing production policies. exist

“OPEC + was rumored to consider a cut on the basis of weak demand, especially in China, in the past few days. But China’s traffic throughout the country is not dramatically down,” Galimberti said.

There is a significant chance of another OPEC+ cut, says RBC's Helima Croft

Energy market participants remain wary of EU sanctions on purchases of crude oil exports from the Kremlin on December 5, while the prospect of a G-7 price limit on Russian oil is another source of uncertainty.

The 27-nation European Union bloc agreed in June to ban crude purchases in Russian waters from Dec. 5 as part of a concerted effort to reduce the Kremlin’s war footing following Moscow’s invasion of Ukraine.

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Concerns that an outright ban on Russian crude imports could send oil prices soaring, however, prompted the G-7 to consider a price cap on how much it will pay for Russian oil.

No formal agreement has yet been reached, although Reuters reported Thursday that EU governments have tentatively agreed to a $60 barrel price cap on Russian offshore oil.

“The other factor OPEC will need to consider is the true price ceiling,” Galimberti said. “It’s still up in the air, and that adds to the uncertainty.”

The Kremlin has previously warned that any attempt to impose a price cap on Russian oil will cause more harm than good.

‘so much uncertainty’

OPEC+ agreed in early October to reduce production by 2 million barrels per day starting in November. It came despite calls from the United States for OPEC+ to pump more to lower gas prices and help the global economy.

The energy alliance recently hinted it could impose bigger production cuts to spur a recovery in crude prices. The signal came despite a report from the Wall Street Journal suggesting a production increase of 500,000 barrels per day was under discussion for Sunday.

OPEC+ agreed in early October to reduce production by 2 million barrels per day starting in November. It came despite calls from the United States for OPEC+ to pump more to lower gas prices and help the global economy.

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Earlier this week, RBC Capital Markets’ Helima Croft said there was no expectation of a production increase at the upcoming OPEC+ meeting and a “significant chance” of a deeper production cut.

“There’s a lot of uncertainty,” Croft told CNBC’s “Squawk Box” on Tuesday. OPEC delegates “have to factor in what is happening with China, but also what is happening with Russian production.”

“My expectation now is, if the prices flirt with Brent break in the 70s, certainly OPEC will make a deeper cut, but the question is, how do they factor in what will come the next day?” Croft said. “So I still think it is up for grabs.”

Oil prices, which have fallen sharply in recent months, were trading slightly lower ahead of the meeting.

International Brent crude Futures traded 0.2% lower at $87.78 a barrel on Friday morning in London, down from more than $123 in early June. US West Texas Intermediate futuresMeanwhile, dipped 0.3% in trade at $ 80.95, compared to a level of $ 122 six months ago.

Goldman Sachs' Jeff Currie says OPEC+ is likely to impose oil production cuts

Tamas Varga, analyst at broker PVM Oil, “Barring any negative surprises during the virtual OPEC + talks on Sunday and assuming a healthy compromise on Russian oil price limits before the EU sanctions kick in on Monday, it is tempting and bold that found below. Associates, said in a note Thursday.

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Varga said that the price of oil trading below 90 dollars per barrel was “unacceptable” for OPEC and Russia was widely expected to introduce retaliatory measures against those who signed up for the G-7 agreement.

“Hectic and nervous market conditions will prevail, but the new month should bring more joy than November,” he added.

‘Secondary probability’ of a production cut

Jeff Currie, global head of commodities at Goldman Sachs, said OPEC ministers would need to discuss whether to accommodate further weakness in demand from China.

“They managed to face the fact that, hey, demand is down in China, the prices reflect it, and they accommodate this weakness in demand?” Currie told CNBC’s Steve Sedgwick on Tuesday.

“I think there is a high probability that we see a cut,” he added.

Analysts at political risk consultancy Eurasia Group said that lower oil prices “increase the risk” of a new OPEC+ production cut.

“Ultimately, the decision will depend on the trajectory of oil prices when OPEC+ meets and how much disruption is evident in the markets due to EU sanctions,” Eurasia Group analysts led by Raad Alkadiri said Monday in a research note.

If Brent crude futures fall below $80 per barrel for a sustained period before the meeting, Eurasia Group said OPEC+ leaders could push for another production cut to boost prices and bring Brent futures back up to around $90. a level “that they look like. grace.”

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