Oil: OPEC+ is doing the bare minimum by ramping up production at margin
“100,000 barrels a day”, this is the meager amount that the Organization of the Petroleum Exporting Countries (OPEC) led by Riyadh and its allies led by Moscow decided to increase their current production levels at the end of their meeting this Wednesday. That’s well below the roughly 432,000 then 648,000 additional barrels they decided on in previous months.
It’s also a setback for US President Joe Biden, who traveled to Saudi Arabia to call for an increase in subsidies in the kingdom, which is one of the few producing countries with additional production capacity.
The decision did not affect the market, the price per barrel oriented downwards. Investors were more influenced by the unexpected increase in oil stocks in the United States. The price per barrel depreciated by around 2%, taking the barrel of Brent to around $98 and the barrel of WTI to around $92. In a month, the Brent price lost about 10%.
The OPEC+ decision was the subject of mixed opinions, according to analysts. Oanda’s Edward Moya joked about it “the smallest increase in OPEC+ history that will not help overcome the current energy crisis,” to believe that “The Biden administration will not be pleased”and even predict “a setback in US-Saudi relations”.
Others, like PVM Energy’s Stephen Brennock, saw it “a symbolic measure of appeasement” Joe Biden.
The 23 members were due to decide on a new strategy this Wednesday, the current agreement is expiring: on paper 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 had first visited Saudi Arabia as President of the United States in mid-July, a far cry from his statements on any state “Pariah” after the assassination of dissident journalist Jamal Khashoggi. His goal: 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 was also on his way to receive Saudi Crown Prince Mohammed bin 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.
OPEC+ plays it safe
Geopolitical issues aside, the recent relative drop in oil prices amid recession fears may have prompted OPEC+ to play it safe. Since peaking last March at levels not seen since the 2008 financial crisis, the two crude oil benchmarks are down more than 26%.
A caution from which all member countries of the cartel benefit. Saudi Arabia posted strong growth in the second quarter of 2022, boosted by black gold.
Another element is the low reserve capacity of the various members, with the exception of Saudi Arabia and the United Arab Emirates. Indeed, OPEC+ is struggling to meet 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.