Organization of the Petroleum Exporting Countries (OPEC) member nations and their allies (together forming OPEC+) decided on Wednesday, August 3 to slow the pace of production growth. The representatives of the thirteen members of the organization and their ten partners are thus defying calls by American President Joe Biden to open the oil floodgates further in order to curb the rise in prices.
OPEC, led by Saudi Arabia, and its allies, led by Moscow, have agreed on an almost ridiculous increase in production for the month of September: viz “100,000 barrels a day”compared to around 432,000 and then 648,000 additional barrels set for previous months, the alliance said in a press release after its Vienna meeting.
Prices rose immediately “something to disappoint the American President”, responded to Agence France-Presse Tamas Varga of PVM Oil Associates. Oanda’s Edward Moya joked about it “The smallest increase in OPEC+ history that will not help overcome the current energy crisis”. “The Biden administration will not be enthusiastic”he guessed predictively “a setback in US-Saudi relations”. Others, like Stephen Brennock of PVM Oil Associates, saw it “a symbolic measure of appeasement” Joe Biden.
Low reserve capacity
The 23 members of OPEC+ should decide on a new strategy as their current agreement expires. They have returned to pre-pandemic production levels. In the spring of 2020, the company chose to keep millions of barrels of oil underground to avoid flooding the market with crude oil it couldn’t absorb due to a slump in demand.
Hoping to influence the decision, Joe Biden made his first visit to Saudi Arabia as US President in mid-July and stayed away from his talk about a state “outcast” after the assassination of dissident journalist Jamal Khashoggi. His goal was to convince the kingdom to pump more to curb rising fuel prices.
With its decision, OPEC+ shows that it remains united and spares Russia, whose interests are diametrically opposed to those of Washington. In the press release, she insists “the importance of maintaining the consensus essential to the cohesion of the Alliance”.
Last week, French President Emmanuel Macron also attended the maneuver by receiving Saudi Crown Prince Mohammed Ben Salman. At the end of a meeting denounced by human rights defenders, the two leaders said they wanted to “Intensify cooperation” to the “Mitigating the Impact in Europe, the Middle East and the World” of the war in Ukraine.
Geopolitical issues aside, the recent relative drop in oil prices coupled with recession fears may have prompted OPEC+ to play it safe. Since peaking last March at levels not seen since the 2008 financial crisis, both crude oil benchmarks, Brent and WTI, are down more than 26%. The cartel is also taking advantage of the current situation. Saudi Arabia posted strong growth in the second quarter of 2022, boosted by black gold.
With the exception of Saudi Arabia and the United Arab Emirates, the various members also have little reserve capacity. Indeed, OPEC+ is struggling to meet the advertised quotas, due to ongoing political crises or even the lack of investment and infrastructure maintenance during the pandemic. Russian production is also being reduced under the yoke of Western sanctions related to the invasion of Ukraine.