— This is the script of CNBC’s financial news report for China’s CCTV on December 5, 2022.
The decision OPEC+ made to stick to the existing policy of reducing oil production reflects the uncertainty regarding supply and demand in the global energy market.
First, starting this Monday local time, the EU and G7 sanctions on Russian oil exports will come into effect, and the price cap plan that has been discussed since September is finally in sight, set at $60 per barrel. What is hard to say for sure, however, is the extent to which the sanctions will restrict Russia’s oil exports.
From this chart, we can see several of Russia’s major crude oil export ports, namely Primorsk in the western Baltic Sea, Novorossiysk in the Black Sea, and Kozimino in the Far East. Exports from the Far Eastern ports are mainly for the Asian market, and as of December 2, prices were above $60 per barrel, while the remaining two were around $50 per barrel, below the price cap of $60 per barrel. Therefore, some analysts believe that the price cap is a non-event now.
Matt Smith
Kpler’s Lead Oil Analyst
“I think they’re gonna be driven by everything else rather than by the price cap issue, essentially, because it’s going to be somewhat ineffective.”
However, Russia has said that it would rather cut production than supply oil and petroleum products to countries that impose price limits on Russian oil. This, in turn, adds uncertainty to the supply of international energy markets.
Crude oil futures prices fell after the EU agreed to price caps, and traders are concerned that a large amount of Russian oil could be withdrawn from the market, triggering a supply crisis. International oil prices have continued to weaken since June this year, with Brent crude futures prices falling by up to about 30%.
Jorge Leon, Vice president of analysis at Rystad Energy said in an interview with CNBC that there are three certainties even though scenarios show a wide range of uncertainty.The first one is that the energy crisis is far from over. The European Union has made it through this winter, essentially paying a high LNG cost and mild weather. However, the second half of next year could be painful. The second certainty is that Europe will have to pay a premium for diversifying imports away from Russia. Energy security comes with a cost.
Jorge Leon
Vice president of analysis at Rystad Energy
“The third certainty is that oil and gas prices will remain elevated for the next months or so, always, when there’s a disruption in the market, there’s going to be some price action. And that’s going to affect the global economy and consumers around the world.”
As well, many media outlets have reported that since its invasion of Ukraine, Russia has quietly amassed a fleet of over 100 ageing tankers which is called the “shadow fleet”. According to analysis, the “shadow fleet” will reduce the impact of sanctions, but it won’t eliminate them completely. In the first few month of 2023, it is possible that Russia will have difficulty maintaining its export levels, which will cause oil prices to rise.
Furthermore, Chinese demand and the U.S. strategic oil reserve situation will also affect future oil prices.
Matt Smith
Kpler’s Lead Oil Analyst
“What we should continue to remain focused on is everything that is happening in terms of demand concerns with China. And on the flip side, what happens with the US SPR, given the large release has basically come to an end here now.”
Some OPEC+ watchers have also argued that keeping oil production quotas unchanged is understandable due to the many uncertainties. The decision will remain in place for at least a few months. A production meeting will not be held until June next year. However, the alliance also said it was ready to meet at any time and take immediate additional measures to address market developments
