Opec+ decision to meet online signals no policy change

With concern over the outlook for the global economy lingering, options for Opec+ ministers ahead of their 4 December meeting were looking clear — stick to the production targets agreed at their last meeting or, at a push, make another cut to quotas from January. A decision late on Tuesday to scrap an in-person gathering in Vienna in favour of a more discreet online meeting, in large part because the G7 is dragging its feet over the Russian oil price cap, suggests ministers are more likely to opt for a rollover than a cut.

At its October meeting, Opec+ agreed to lower its combined crude output ceiling by 2mn b/d from November through to the end of 2023. The decision came against a backdrop of heightened concerns that an inflation-driven economic slowdown will weigh on global oil demand. Although the cut to actual production amounts to around half the headline 2mn b/d — because many countries in the group are already producing below target — the move helped propel Ice Brent crude futures to a two-month high of close to $99/bl in early November, from $83/bl ahead of the meeting.

Oil prices have since been on a downward trend, as concerns over demand come to the fore again. A combination of weak economic data out of China and continued central bank action to combat inflation has effectively wiped the price gains triggered by the cut, with Brent futures dipping as low as $80/bl earlier this week. The EU's prolonged struggle to agree on the exact level of the G7's Russia oil price cap, and a sense in the market that its impact on supply may be limited, have also contributed to the price slide.

Several Opec+ delegates said last week that the upcoming ministerial meeting could go one of two ways — either no change to production policy and a commitment to keep a close eye on market fundamentals, or another cut to quotas to reflect the precarious demand outlook in China. Two delegates suggested it may be too soon for a further reduction. "I doubt it will come at this meeting, but you cannot exclude it," one delegate said.

Moving parts

Fast forward to this week, and the group appears to be coalescing around keeping production targets unchanged at November-December levels until there is more clarity in the market. "There are so many moving pieces at the moment, and so much uncertainty," one delegate said, highlighting the surprising lack of progress made in the Russia price cap talks. "How can we decide on policy when there are such serious unknowns."

The price cap is designed to keep Russian oil flowing while limiting Moscow's revenues. Western companies will be allowed to carry on supplying transport and insurance services for the shipment of Russian crude to non-G7 destinations, as long as the oil is purchased at or below a still-to-be-finalised fixed price. Moscow is sending mixed signals about how it will respond. Deputy prime minister Alexander Novak reiterated the Kremlin's long held position on 29 November that Russia will not export crude to destinations supporting the price cap initiative. But Kremlin spokesman Dmitry Peskov said earlier that, although Russia's position remains that it will not supply crude under price cap terms, "nuances" must be considered and a final position is yet to be formulated.

The uncertainty over the cap is a big factor behind the decision to move this month's Opec+ meeting online. The cap is due to take effect on 5 December, the day after the Opec+ meeting, along with the EU's ban on seaborne imports of Russian crude. And the producer group is keen to avoid having to answer for an issue that is very much out of its control. "We need more clarity," one Opec+ source said.

Once the full details of the G7's plan are finalised and its impact better analysed, Opec+ ministers could choose to meet in person. "As we have shown before… [we] can meet at very short notice," the source said. "We have that flexibility."

Opec ministers are due to meet virtually on 3 December, ahead of the full Opec+ ministerial meeting on 4 December. The Joint Technical Committee (JTC) and Joint Monitoring Committee (JMMC), which typically meet ahead of the full ministerial meeting to study market conditions, had been due to meet on 2 December and 4 December, respectively. But the JTC meeting has now been cancelled, according to sources, adding more weight to the prospect of a rollover in output policy

By Nader Itayim and Ruxandra Iordache