It is expected that on the eve of the new sanctions against Russia going into effect, “OPEC+” will choose to remain cautious and maintain the status quo in terms of production quotas at its meeting on Sunday, November 4. So how will Moscow react?
On the 4th, members of the alliance held a video conference at 11:00 UTC to set their next production target.
Meanwhile, Russia on the 3rd refused to set a cap on its oil prices. It comes after the EU, the G7 and Australia agreed on a mechanism that could limit Moscow’s imports to finance its attacks on Ukraine. Work under the mechanism could start tomorrow “or later”.
On the same day, the European Union’s embargo on seaborne Russian crude oil came into effect, thus canceling two-thirds of the EU’s oil imports from Russia.
How will Western moves affect Russian oil supplies?
The Western move is aimed at preventing Moscow from funding its war in Ukraine.
According to the agreement, the Russian oil price ceiling is set at least 5% lower than the crude oil market price. And if Russian oil sells for more than $60 a barrel, the G7 countries will ban their shipping companies from facilitating the shipment of Russian oil.
According to Agence France-Presse, analysts at the Dutch central bank (DNB) said there was a major “uncertainty” about the potential impact of the above-mentioned Western moves on Russian oil supplies.
The report said that the current price of Urals crude oil is around US$65 per barrel, which is slightly higher than the ceiling set by the EU ($60), so the short-term impact is limited.
However, the Kremlin has warned that it will not send oil to countries that employ such a mechanism. Agence France-Presse quoted Oanda Financial Group analyst Craig Erlam as saying that this puts some countries “in a very awkward position, because they have to choose between losing cheap Russian crude oil or exposing themselves to G7 sanctions. “.
According to DNB Bank, facing the unknown, OPEC+ may decide to “stay out of the spotlight and see if oil prices rise after the new round of sanctions”.
The choice to hold the virtual meeting online, rather than at the Union headquarters in Vienna, strengthened the scenario of maintaining the status quo, which would cut output by 2 million barrels per day in December, as in previous months, the analyst said. This is a development that Iranian sources confirmed to AFP.
Falling Prices and the Kremlin’s Choice
Still, analysts at OANDA Financial Group did not rule out approving a “sharp cut” to support prices affected by worsening global economic conditions.
High inflation has led to subdued economic conditions and weak energy demand due to China‘s “dynamic cleanup” policy to fight the epidemic. Amid the above concerns, global prices for both reference oils remain near their lowest levels this year and are far from their peaks recorded in March.
Oil prices have fallen sharply by around 6% since the OPEC+ meeting at the cartel headquarters in Vienna in October, bringing them back to levels last seen in early 2022.
Agence France-Presse quoted UniCredit analyst Eduardo Campanella as saying the Kremlin had “many options to circumvent” the moves.
“Moscow could respond by using its influence within ‘OPEC+’ to push the alliance to take a more hostile stance,” he said. As he described it, it was a warning to the West, which had enraged the coalition by imposing price caps.
Analyst Campanella also warned that such a scenario would lead to “an exacerbation of the world‘s energy crisis”.
On the 3rd, Russia announced that it would absolutely not accept the maximum price limit set by the EU and the G7 for its oil exports.
Kremlin spokesman Dmitry Peskov told reporters in Moscow: We are currently analyzing the situation. Of course, preparations have been made to deal with this restrictive plan.
He also said: We will never accept this ceiling, we need to conduct a quick analysis first, and later we will decide how to organize our actions.
Ukrainian President Volodymyr Zelensky said on Saturday that the G7 and Australia’s decision to set a maximum price of $60 for Russian seaborne oil shipments was not serious and that it would do nothing to stop Moscow from waging war in his country. Too much to contribute.
Zelensky said in a video speech: “It cannot be called a serious decision to set a ceiling on Russian prices at such a level. It is very easy for counterbalancing terrorist states. In any case, we resort to using more Powerful tools are only a matter of time. I regret wasting time this time.”
Earlier in the day, Ukrainian Presidential Chief of Staff Andrei Yermak said on Telegram that the price ceiling should be lowered to $30 a barrel to “destroy the enemy’s economy faster”.
Zelensky believes that if the price is capped at $60, the world will show weakness. He also said it would add $100 billion a year to Russia’s budget.