OPEC and its allies, including Russia, said on Sunday that they would leave their quotas for oil production unchanged. The group, known as OPEC Plus, appears to have decided during a teleconference that there was no reason to alter policy amid so many uncertainties in the oil market.
On Monday, the European Union will begin an embargo on Russian oil, while the Group of 7 industrialized nations and their allies are imposing a price cap of $60 a barrel on Russian crude.
There were several reasons for the producers’ group to hold its fire. Chief among them are the looming European embargo and the price cap. What the outcome of these initiatives will be for oil markets is still to be determined, but they could affect millions of barrels a day of Russian oil. OPEC may have decided that it was better off keeping its collective head down rather than risk being blamed if, for instance, prices jump in the coming days.
The Biden administration had criticized the Saudis, the de facto leaders of OPEC Plus, for orchestrating a production cut of two million barrels a day, or about 2 percent of global oil production, at the group’s last meeting. That announcement, the first large production cut in two years, was seen as a bid to bolster oil prices.
In a news release after its meeting on Sunday, OPEC Plus defended the action, saying the production cut was now recognized by market participants to have been “necessary and the right course of action.”
Because oil is ordered several weeks in advance, the production trims announced in October only began working through the market in the last few weeks. In addition, releases from the strategic stockpile of the United States are winding down.
The Saudis, who are absorbing the largest of the production cuts, probably want to wait and see whether the output trims and the end of the reserve releases offset weakening demand, especially in China, the world’s largest oil importer, where Covid lockdowns are hampering industrial production and overall economic activity.
While the full group is not scheduled to meet again until June 2023, the news release said that they were ready “to meet at any time and take immediate additional measures to address market developments.”
Brent crude, the international benchmark, was $85.57 a barrel on Friday, down from more than $110 in June, while West Texas Intermediate crude is about $80 a barrel. Many analysts say the Saudis are determined to seek a price of around $90 a barrel for Brent, and that they will cut production, regardless of protests from the West, if prices fall significantly from that level.