- Oil rallies for a second day on hopes that OPEC+ will deliver a significant production cut
- The market's focus remains on OPEC+'s decision at their meeting tomorrow, as the cartel is already having trouble reaching its production quotas
- Yesterday, WTI rose by more than 5% after some OPEC delegates said that OPEC+ is considering reducing production by more than 1 MMBbl/d
- A weaker dollar and looming sanctions on Russian exports are also supporting prices
- Saudi Aramco, the world's largest oil company, warned that global oil spare capacity is extremely low and that there won't be any left if China ends its Covid zero plan (BBG)
- “This is where we are heading. If China opens up a little bit, you will find out that spare capacity will be eroded completely,” said Aramco’s CEO Amin Nasser at a conference on Tuesday
- Only 1.5 to 2.0 MMBbl/d of capacity, according to analysts, could be quickly brought online in case of a supply disruption
- That amounts to just under 2% of the global market
- Additionally, if the anticipated production cut by OPEC+ materializes, there could be an increase in spare capacity, which might put downward pressure on longer-term prices
- U.S. Treasury official Ben Harris gave out details for G7 nations' phased oil sanctions at a summit in Geneva today (BBG, Reuters)
- According to Harris, the G7 sanctions will be implemented in three phases, with the first phase focusing on crude oil, the second on diesel, and the third on lower-value products like naphtha
- Beginning on December 5, the G7 and the EU will impose sanctions which include a two-phase ban on Russian crude and products
- The G7 could be in an odd position of attempting to ensure Russian production, despite worries that the sanctions might boost oil prices even further if Russia chose to cut its exports
- "As long as we preserve the flow of Russian oil, we consider this a win," Harris said. "The price cap can be considered a release valve on the (EU) sanctions package," he added. "It transforms the ban from an absolute ban to a conditional ban."