Oil: OPEC drops production, Russia increases it

Just 3 days after the EU ban on seaborne Russian crude imports went into effect, Russian oil producers are going against all odds and have actually ramped up production in recent weeks, according to some reports. On Oct. 5, the group of oil producers known as OPEC+ agreed to cut November production by 2 million bpd, ignoring calls by the United States to pump more crude to keep prices attractive for consumers. The proposed cut came at a time when OPEC+ deemed it necessary to cut production to stabilize crude markets in the face of global demand uncertainty this fall.

A month later, the actual results of the proposed cuts are starting to be felt. According to a Reuters poll, OPEC's actual production in November was 29.01 million bpd, about 710,000 bpd less than in October. The bulk, according to the survey, was done by Saudi Arabia, which reduced its November production by 500,000 bpd compared to October.

Although the group exceeded its output cut target, according to Reuters data, the data does not include Russia, nor any other producer outside OPEC-13. In complete contrast to expectations, Russia, which, according to its own official figures and data from the energy intelligence company Kpler, actually increased production in November.

Viktor Katona, an oil analyst at Kpler in Vienna, confirms that "Russian oil producers have done what contradicts the main narrative, which is they have increased production".

Ahead of EU sanctions coming into force next week, Russia produced 10.9 million bpd in November and ramped up exports to China, India, South Korea and Japan last month. Despite poor consumption data in China, data from Refinitiv Research shows that Asia imported a record 29.1 million barrels per day (bpd) of crude oil in November, up from 25.6 million bpd in October and 26.6 million bpd in September.

Even though Asian buyers have not joined the G7 proposal to cap oil prices, uncertainty about the future supply of Russian crude and the ability to finance and insure shipments of Russian crude has raised concern among Asian importers .

Indeed, uncertainty is the key word in energy markets in December. With a ban on Russian crude oil imports by sea around the corner, a potential OPEC+ production cut on the table, and ongoing discussions about capping Russian oil and gas prices, the supply side of the market has become even more complex.

Starting Sunday, the OPEC+ meeting, which is expected to result in an unchanged production quota, could still hold a bullish surprise. About a week before the meeting, unnamed sources told Reuters they expect OPEC+ to take no further action to support oil prices as the EU is discussing a ceiling on Russian crude, but with just two days to go before the meeting, a growing number of pundits and analysts expect OPEC+ to cut production again to address weak demand in China.

So we are faced with a paradoxical situation: on the one hand OPEC intends to cut quotas to keep the price high, certainly above 80-90 dollars a barrel, on the other Russia is increasing its production. The price is therefore uncertain because it will result from the balance of these two opposing forces whose level is difficult to predict from now on. A confused situation that will also depend on the effectiveness of Western sanctions.

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The article Oil: OPEC drops production, Russia increases it comes from Economic Scenarios .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/petrolio-lopec-cala-la-produzione-la-russia-lo-aumenta/ on Sun, 04 Dec 2022 10:07:28 +0000.