Oil market dynamics ahead of OPEC+ meeting

Key takeaways:

1. Oil prices today are hovering around the same levels seen just before OPEC+’s previous meeting in October when the producers’ group announced 2 million barrels per day (Mb/d) production cut.
2. Today, the market is faced with several powerful dynamics including the EU sanctions on Russian seaborne crude which will become effective on 5th December, the oil price cap which is yet to be finalised, and the China factor – will the government appease protests by relaxing covid-related policies, and, if they do, will that mean greater oppression elsewhere? Add to that the gradual lifting of oil sanctions on Venezuela.
3. While it is likely that OPEC+ will roll over its previous decision, markets should always be prepared for surprises from the producers group.
4. The market has already factored in the implementation of the EU sanctions on seaborne crude oil. However, the effectiveness of these sanctions remains questionable. Oil markets are global and liquid and what we have seen so far is a simple redirection of Russian crude from Europe to Asia, instead of a loss of Russian oil, while more crude has been coming from the Middle East to Europe.
5. The implementation of the oil price cap would come on top of the sanctions, but its level is yet to be determined. The lower the cap is, the stronger the pain is for Russia. The other important unknown is how Russia will respond to the price cap. All these uncertainties support continued volatility in oil markets.