At a meeting on Sunday, OPEC+ agreed to stick to its oil output targets as the oil markets struggle to estimate the impact of a slowing Chinese economy on demand and G7 price cap on the Russian oil on supply. The decision comes just two days after the Group of Seven (G7) countries agreed on a price restriction for Russian oil.
OPEC+, which includes OPEC and its allies, including Russia, enraged the United States and other Western nations in October when it decided to cut output by 2 million barrels per day (BPD), or around 2% of global demand, from November until the end of 2023.
Despite Moscow’s war in Ukraine, Washington accused the group and one of its leaders, Saudi Arabia, of backing Russia. OPEC+ claimed it reduced output due to a deteriorating economic outlook. Oil prices have fallen since October as a result of slower Chinese and global growth, as well as higher interest rates, leading to market speculation that the group may reduce output again.
However, on Sunday, a group of oil producers opted to maintain the current strategy. Its senior ministers will next convene on February 1 for a monitoring committee. It will be followed by a full meeting on June 3-4. Moscow stated that it would not sell its oil under the cap and was planning its response.
Many analysts and OPEC ministers have suggested the price cap is perplexing and likely inefficient because Moscow has been selling the majority of its oil to nations such as China and India, who have refused to condemn the Ukrainian conflict.
Russian Price Cap
According to sources, neither the OPEC meeting on Saturday nor the OPEC+ meeting on Sunday discussed the Russian price cap. On Sunday, Russia’s Deputy Prime Minister Alexander Novak stated that the country would prefer cut output than provide oil under the price restriction, adding that the cap could affect other producers.
According to sources, several OPEC+ members have expressed dissatisfaction with the cap. It also warns that the anti-market move can be useful for the West against any supplier. As per the US, OPEC is not directing this action. According to JP Morgan, OPEC+ may reconsider production in the new year based on new data on Chinese demand trends and consumer compliance with Russia’s crude output and tanker flow price limitations.
Russia has refused to accept a price restriction on Russian oil. In this, the European Union, the G7, and others have set at USD 60 per barrel, according to sources.
According to the Russian news agency TASS, Kremlin Spokesman Dmitry Peskov stated, We are examining the situation. Certain preparations for such a cap are in place. We will not accept the price cap. Further, we will advise you how the work will progress after the assessment is through. The European Union decided on Friday to cap the price of Russian seaborne oil at USD 60 per barrel.
Price Cap Impact
West’s major economies agreed earlier this year to establish a price ceiling in response to US lobbying. It also promised to work out the details by early December. EU nations such as Poland and Estonia had lobbied for a lower threshold.
The price cap was expressly designed to reduce Russia’s revenues while maintaining global energy markets stability through ongoing deliveries. It will so help to manage inflation and keep energy costs steady at a time when high expenses. It is notifiable that high fuel prices are a major concern in the EU and around the world.
The price cap will go into effect for crude after December 5, 2022, and for refined petroleum products after February 5, 2023 [the price for refined products will be finalized in due course]. It will take effect concurrently in all Price Cap Coalition areas. The price cap also ensures a smooth transition by not applying to oil purchased above the price cap. Also that is carried aboard vessels before 5 December and discharged before 19 January 2023.
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