Saudi energy minister sees no clear results yet from Russia price cap

RIYADH: Saudi energy minister Prince Abdulaziz bin Salman said on Sunday the impact of European sanctions on Russian crude oil and price cap measures “did not bring clear results yet” and its implementation was still unclear.

The Group of 7 price cap on Russian seaborne oil came into effect on Dec. 5 as the West tries to limit Moscow’s ability to finance its war in Ukraine. Russia has said it would not abide by the measure even if it has to cut its production.

“What is happening now in terms of sanctions and price caps imposed and all of it really did not bring clear results, including measures implemented on Dec. 5, we see a state of uncertainty in implementation,” Prince Abdulaziz told a forum held following the country’s 2023 budget announcements in Riyadh.

Prince Abdulaziz said Russia’s reaction and what actions it would take in response to these tools was another aspect that needed to be taken into consideration when looking at the state of play in global markets. “These tools were created for political purposes and it is not clear yet whether they can achieve these political purposes,” he said, referring to the price cap.

Other factors affecting the market going into 2023 include China’s COVID-19 policies. The impact on China’s economy from easing Covid restrictions still “needs time”, he said.

Central banks’ actions to tame inflation were also still a factor. “Central banks are still preoccupied with managing inflation, no matter the cost of these measures and their possible negative impact on global economic growth.”

The decision of The Organization of Petroleum Exporting Countries and allies including Russia to cut production by 2 million barrels per day on Oct. 5 was proven to be the correct one when recent developments are taken into consideration, he said.

The alliance last met on Dec. 4 and decided to keep output unchanged amid a weakening economy and uncertainty over how the Russian price cap would affect the market.

Prince Abdulaziz said the alliance would continue to focus on market stability in the year ahead. He also said he insisted that every OPEC+ alliance member take part in decision-making.

“Group action requires agreement and therefore I continue to insist that every OPEC+ member, whether a big or small producer…be a part of decision-making,” Prince Abdulaziz told the forum. “Consensus has positive implications on the market.”

Hassan Balfakeih, an oil demand specialist and former chief oil demand analyst at OPEC Secretariat, agreed that although the implementation of a price cap on Russian oil to Europe and the expected Russian response is not clear, their influence is anticipated to be minimal and temporary. “Oil consumers in Europe were aware of these restrictions for approximately six months, giving the member states of the EU considerable time to identify alternative sources of oil supply and for the whole of the oil sector to reorganize its supply.”

Additionally, he added that OPEC and OPEC+ have adopted a dynamic strategy for promptly responding to market signals, such as supply shortfalls brought by, for instance, sanctions against Russian oil. “If it becomes necessary, the group will discuss the necessity to meet and conduct a more thorough evaluation of the situation before its meeting in February,” added Balfakeih.