Opec+ holds oil output steady as new sanctions on Russia loom

Opec and its allies left the group’s oil output targets unchanged as it signalled it would assess the impact of new western restrictions on Russian crude exports before changing production levels, delegates told the Financial Times on Sunday.

European sanctions barring seaborne imports of Russian crude come into effect on Monday, pushing the oil market into a renewed period of uncertainty as it is unclear whether Moscow will be able to find alternative buyers for its crude.

At the same time G7 leaders have agreed to launch a so-called price cap mechanism that aims to keep Russian oil flowing to countries like India and China by allowing such shipments continued access to European shipping and insurance services, but only if the crude is sold at below $60 a barrel. Russia has repeatedly said it will not sell any oil to countries utilising the cap.

Uncertainty about how those measures will affect Russian crude exports meant it made sense for Opec+ to hold fire, analysts said, with Russia second only to Saudi Arabia in terms of oil production capacity among the members of the expanded organisation.

“If markets move adversely Opec+ will intervene as it has made clear it wants to balance the market proactively and preemptively,” said Christyan Malek at JPMorgan, adding that Opec was also becoming more confident about the outlook for oil demand.

At the group’s last meeting in October, the first held face to face since the start of the coronavirus pandemic, Opec+ agreed to cut its production targets by 2mn barrels a day, provoking fierce criticism from the US and other consumer countries, which accused the group of aligning with Russia to drive up the oil price.

Saudi Arabia argued Opec+ was reducing output because of concerns of a global slowdown in economic activity and the oil price reaction since those cuts were announced has been limited.

Brent crude, the international benchmark was trading at $87 a barrel on Friday — near where it was when it became clear in October Saudi Arabia was leading a push to lower production and far below the $120 a barrel it hit as recently as June.

Opec+ officials had planned to meet in person again on Sunday, at the Opec headquarters in Vienna, but changed tack this week, electing to hold the meeting online instead.