A deal was reached on Sunday between OPEC and its allies, including Russia, to maintain a 2 million barrel per day (bpd) cut in Oil (CL) production through 2023 which was agreed upon back in October. As of the time of the writing, on Monday, Oil prices rose after OPEC+ countries maintained their output targets ahead of an EU embargo and a Russian price cap. Furthermore, many Chinese cities recently loosened COVID-19 restrictions, which might be encouraging news for the nation's gasoline consumption.
The Ins and Outs of the Oil Cap
In an effort to limit Russia’s capacity to fund its operation in Ukraine and maintain stability on the world oil market, the Group of Seven countries (G7), Australia, and the 27 member states of the European Union implemented a price cap on Russian Crude Oil carried by ships after December 5. Aiming primarily to give third-party nations the option to continue to purchase Russian Crude Oil if the deal is below or equal to the price cap. The price cap is in addition to EU prohibition on the purchasing of maritime transported Russian Crude Oil.
The price cap was set at $60 per barrel, starting on the 5th of December for crude oil, and from January 5th for refined petroleum products. The price cap will be examined every two months to ensure that it stays at least 5% under the International Energy Agency's average selling price for Russian Oil. The G7 will then jointly approve any changes to the cap after receiving majority consent from all 27 members of the European Union. (Source:Reuters)
OPEC+ Maintains Output Cuts
Despite uncertainties on the consequences of the new European sanctions against Russia, which have the potential to eliminate large amounts of Oil from the market, the Saudi-led OPEC cartel and its allies, including Russia, did not alter its plans for delivering Oil to the global market. The decision was made during an Oil ministers' meeting on Sunday, one day before the scheduled commencement of two measures aiming to limit Russia's Oil revenues in response to its incursion of Ukraine.
China Eases COVID-19 Limitations
In recent weeks, oil traders have been paying close attention to China's rapidly evolving strategy for managing COVID-19. After an unusual round of uprisings, the government is easing restrictions, which may boost Oil and Commodity demand forecasts. The easing of restrictions in major cities such as Shanghai, Shenzhen, and Guangzhou has accelerated the reopening process. (Source:Bloomberg)
Oil Prices Spike Slightly
The price of Oil was up by 0.9% on Monday, as of the time of writing, as OPEC+ countries maintained their output objectives in advance of a European Union boycott and the implementation of a price restriction on Russian crude.
The increase in Oil prices is the latest twist in a year that has been incredibly unpredictable for one of the most important Commodities in the world. With markets shaken by the greatest land battle in Europe since World War II and a ferocious round of Fed tightening to combat runaway inflation where global markets in black gold will head as we near the end of this tumultuous year is anyone’s guess.