This could prove to be a pivotal week for the oil markets. OPEC and its allies including Russia agreed to pause any production moves as a Group of Seven (G7) nations price cap takes effect today, while the European Union (EU) launches a ban on Russian oil imports. Chinese leader Xi Jinping is also set to visit Saudi Arabia amid concerns that COVID-19 lockdowns will slow imports to China.
On Sunday, OPEC and non-OPEC producers including Russia decided to stick to their existing policy of reducing production by 2 million barrels per day, or about 2% of world demand until the end of 2023. The cartel did say it could also move to alter production at any time as it measures the impact of the G7 price cap and European sanctions.
The EU’s ban on all imports of Russian seaborne crude takes effect today, as well as the G7 price cap of $60 per barrel. The price cap is meant to curb profits Russia makes on its oil exports to finance the war in Ukraine. However, analysts and policymakers are uncertain as to what effect the cap will have on oil prices, especially since Russia has been selling oil at a discount believed to be about $48 per barrel. The Kremlin has warned it will not trade any oil at all with nations that implement the price cap.
Oil prices have fallen about 13% in the last month but have since stabilized. They were at $120 per barrel in early June.