Covid-19 lockdown measures in China, Russian oil sanctions worry the producer group

Summer Said and Benoit Faucon, WSJ

DUBAI/LONDON 
EnergiesNet.com 11 30 2022

OPEC and other big oil producers are likely to decide to keep output levels flat at their meeting Sunday, the group’s delegates said, amid mounting concerns over returning Covid-related lockdowns in China and lingering uncertainty over Russia’s ability to pump.

The 13-member Organization of the Petroleum Exporting Countries and a separate group of producers led by Russia—collectively as OPEC+—are leaning toward approving the same production levels agreed to in October, when they greenlighted a 2 million barrels a day output cut, the delegates said. Sunday’s meeting was planned to take place in person at OPEC’s headquarters in Vienna, but it will now be held remotely to avoid negative media scrutiny, the delegates said.

The move represents a shift in OPEC’s internal deliberations and comes after Saudi Energy Minister Prince Abdulaziz bin Salman raced to shore up unity in OPEC after some members clamored for a production increase of up to 500,000 barrels a day earlier this month, delegates said. Several OPEC producers, including Iraq and the United Arab Emirates, issued statements supporting the current production plan after hearing from Prince Abdulaziz, the delegates said.

The U.A.E. and Iraq have pushed for an upward revision of their OPEC-agreed production limit after they have invested heavily into new capacity that allows them to pump much more. OPEC producers remain worried about a possible oil-supply shortage that could emerge in the coming weeks with new sanctions on Russia, as the West seeks to punish Moscow for its invasion of Ukraine.

The U.A.E. and Iraq have pushed for an upward revision of their OPEC-agreed production limit after they have invested heavily into new capacity that allows them to pump much more. OPEC producers remain worried about a possible oil-supply shortage that could emerge in the coming weeks with new sanctions on Russia, as the West seeks to punish Moscow for its invasion of Ukraine.

The European Union is planning to ban Russian oil almost completely on Dec. 5, a day after OPEC meets, amid separate efforts to put a price cap on Moscow’s crude. Russia’s deputy prime minister, Alexander Novak, said Tuesday that the efforts could cause Russian oil exports to fall.

Still, OPEC members are likely to maintain flat production Sunday instead of increasing output as widespread lockdowns imposed across China to contain the country’s largest Covid-19 outbreak threaten to dim the prospects for world economic growth. OPEC delegates said Covid’s continued threat helped shift the debate away from a production increase.

Prince Abdulaziz had denied reports by media organizations including The Wall Street Journal that a production increase was being discussed, and raised the prospect of another cut. Delegates said an output cut of 500,000 barrels a day was now in the discussion but they deemed it unlikely.

OPEC+’s decision to cut production in October angered the White House and congressional Democrats, who said it undermined global efforts to blunt Russia’s war in Ukraine and viewed it as a political slap in the face to President Biden, ahead of midterm elections.

OPEC delegates said they are also worried any change in direction could bring further volatility to oil markets. Oil prices fell 5% on Nov. 21 after the Journal reported an increase was being discussed.

Prince Abdulaziz has actively campaigned to deter members from upgrading production levels at this week’s meeting, delegates said. Earlier this month, Iraqi Prime Minister Mohammed al-Sudani said his country, which is the second-largest crude-oil producer in OPEC, would discuss a new quota with other members at its next meeting. Immediately after, the Saudi energy minister responded by calling an official in the Iraqi government to remind Baghdad it was bound by the OPEC agreement, according to delegates.

Then on Nov. 21, Iraq softened its stance when its oil minister, Hayyan Abdul Ghani, told Prince Abdulaziz his country would abide by OPEC cuts during a visit to Riyadh. The Saudi minister also reminded the oil minister of the kingdom’s plans to invest in Iraq’s embattled energy sector, according to state media.

Write to Summer Said at summer.said@wsj.com and Benoit Faucon at benoit.faucon@wsj.com

Appeared in the November 30, 2022, print edition as ‘OPEC, Allies Lean Toward Keeping Production Flat’.