OPEC+ pauses as Russia sanctions and China COVID rules roil crude markets

OPEC+ responded to surging volatility and growing market uncertainty by keeping oil production unchanged.

The outcome of the brief online meeting on Sunday reflects the unpredictability of supply and demand in the coming months, and the wild price gyrations in the past week.

The oil producers’ group has only just implemented the hefty two million barrel-a-day reduction agreed at its last gathering. Meanwhile, European Union sanctions on crude exports from Russia come into effect on Monday, and China is tentatively easing the COVID measures that have eroded its fuel consumption.

“With massive and offsetting fundamental and geopolitical risks bearing down on the oil market, ministers understandably opted to hold steady and hunker down,” said Bob McNally, president of Rapidan Energy Advisers LLC.

The decision OPEC+ should hold for at least a few months. The group’s Joint Ministerial Monitoring Committee, led by Saudi Arabia and Russia, will meet again in February. The outlook could be clearer by then, and the panel has the power to call extraordinary meetings if it thinks output policy may need to change.

The next full ministerial meeting is scheduled for June 4.

“OPEC+ rolled over the existing quotas as expected amid uncertainty around Russian flows following the price cap, and a weaker China,” said Amrita Sen, chief oil analyst and co-founder at consultant Energy Aspects Ltd. “The group will continue to monitor markets and should fundamentals deteriorate they will meet prior to June.”

Sunday’s meeting was a calmer affair than the last one in early October, which created a diplomatic spat. President Joe Biden slammed OPEC+ for the supply reduction, accusing Riyadh of aiding Russia’s war in Ukraine by bolstering prices. Since then, the market’s fluctuations have given the group a sense of vindication.

The cut “was purely driven by market considerations, and recognized in retrospect by the market participants to have been the necessary and the right course of action towards stabilizing global oil markets,” OPEC said in a statement.

© 2022 Bloomberg L.P.

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