OPEC+ countries on Thursday decided to slow the pace of output increases, defying US President Joe Biden’s calls for the oil floodgates to be opened wider to stem price increases.
The Organization of the Petroleum Exporting Countries (OPEC), led by Riyadh, and its allies, led by Moscow, have agreed on an almost ridiculous increase for the month of September: namely “100,000 barrels a day,” compared to about 432,000 then 648,000 additional barrels in discontinued in recent months, the alliance announced after a ministerial meeting.
“Setback in US-Saudi Arabia Relations”
Oanda analyst Edward Moya quipped about “the smallest increase in OPEC+ history that will not help overcome the current energy crisis.” “The Biden administration will not be happy,” he told AFP news agency, predicting “a setback in US-Saudi Arabia relations.” “A misery,” also according to Exinity’s Han Tan, who noted that the rise was so small it pushed crude oil prices into positive territory for a few hours.
But others, like PVM Energy’s Stephen Brennock, saw it as “a symbolic measure of appeasement” from Joe Biden.
The group’s decision reflects “a need to juggle conflicting imperatives,” summarizes Matthew Holland, geopolitical analyst at research institute Energy Aspects: not to pump too much to “prop up prices” in the face of macroeconomic concerns, but also “To trade energy price inflation and US demands for higher production”.
The shadow of the recession
Geopolitical issues aside, the recent relative drop in oil prices amid recession fears has visibly prompted OPEC+ to remain risk-averse. Since peaking last March at levels not seen since the 2008 financial crisis, the two crude oil benchmarks are down more than 29%.
Russian Deputy Prime Minister Alexandre Novak, responsible for energy, justified “this prudent decision with the uncertainties weighing on the markets”. When asked about the Rossiya 24 television channel, he spoke of “the increase in Covid 19 cases” and “the disruption of transport and logistics chains”.
Another element is the low reserve capacity of the various members, with the exception of Saudi Arabia and the United Arab Emirates. The alliance also emphasized on Wednesday that they were “extremely restricted” due to “chronic underinvestment in the oil sector” and therefore had to act “with caution in the event of serious supply disruptions”.
OPEC+ is struggling to meet advertised quotas due to ongoing political crises or lack of infrastructure investment and maintenance during the pandemic. Russian production is also being reduced under the yoke of Western sanctions related to the invasion of Ukraine.