OPEC+ has Made a decision to maintain production levels at current levels despite widening supply gaps in the market. The decision comes at a time China is expected to see spikes in demand as the latest COVID-19 lockdown measures ease and Russia’s supplies tank further.
The 23-member nation group last agreed to implement the reduced 2 million barrel-a-day production at its most recent summit on the 4th of October 2022. The meeting, which lasted around 20 minutes, was conducted entirely online. The cut will typically have an impact of further worsening prices.
The EU recently put in place legislation prohibiting a significant portion of imports of Russian crude as well as the utilisation of regional shipping or insurance services to buy Russian oil. This is unless the price is kept below a cap of $60 per barrel. The current trade price for Russian oil is currently at $73.43 in ESPO and $77.25 in Sokol. The imposed sanction-based price ceiling will automatically shift the oil supply curve to the left and cause a hefty reduction in petroleum supplies.
The COVID-19 restrictions that have reduced China's petroleum use are being hesitantly eased and this will increase petroleum demand. Since the month of October, the largest crude importer in the world purchased up to 10.2 million barrels per day. according to figures from the customs service issued on the 31st of October, China made a total fuel import of 43.14 million tons of petroleum. The eased covid 19 restrictions will create a much larger demand spike which will trigger even more shortages in the fuel market.
Zimbabwe’s energy market is presently reeling from extreme supply deficits, especially in electricity. This follows the steep cutback on production at Kariba Hydro which is the main source of electricity supply. The huge deficit which arose requires significant gap filling which will include imports of petroleum for substitution. Already the country is importing electricity worth about US$20 million, a month and this could go up once imports are increased.
The uncertainty disrupts the country’s objectivity in achieving the 3.8% 2023 GDP growth estimate by a much larger margin. The negative outlook remains a threat to the government and necessitates the need for the authorities to explore more options for power provisions.
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