Will OPEC+ change strategy in the face of recession risk and western pressure?
The OPEC+ nations meet in Vienna this Wednesday to discuss their oil production strategy for the coming months, while the United States and Europe have been increasing production for months.
So far, the Riyadh-led Organization of the Petroleum Exporting Countries (OPEC) and its Moscow-led allies have resisted calls to open the floodgates wider to curb inflation fueled by energy prices. Month after month, the 23 members stuck to marginal openings in their floodgates.
But the current deal is coming to an end: On paper, they’re back 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. Those drastic cuts are now a thing of the past and it’s time to choose a new path.
After the lightning meetings of the last months, “This time there is much more uncertainty”notes Oanda analyst Craig Erlam.
The meeting, scheduled via video conference, is scheduled to start at 3 p.m. in Vienna, Austria, at the cartel’s headquarters.
Riyadh under pressure
How will Saudi Arabia, the de facto leader of the alliance and one of the few members with additional production capacity, respond to the White House request and various Western pressures? A far cry from his remarks about a state “Pariah” After the assassination of dissident journalist Jamal Khashoggi, Joe Biden made his first visit to Saudi Arabia as President of the United States in mid-July. His goal: to convince the kingdom to pump more to curb rising fuel prices.
“Riyadh and its allies must decide whether to comply with his request by significantly increasing their production, or show solidarity with Russia by staying the same line.”summarizes PVM Energy’s Tamas Varga.
The meeting will show whether “The group still disagrees on how committed they are to rebalancing the market and whether President Biden has any influence on the cartel.”is rich in Craig Erlam.
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.
The risk of falling prices in the event of a recession
But the recent relative drop in oil prices amid recession fears could prompt OPEC+ to play it safe. Both global crude benchmarks are hovering around the $100 per barrel threshold, a far cry from the highs reached in early March – North Sea Brent had peaked at $139.13 and US WTI at $130.50. Especially since the cartel is taking advantage of the current situation: Saudi Arabia’s economy recorded strong growth in the second quarter of 2022, boosted by the black gold.
Whatever decision is made, it “Probably little impact” in the markets, warns Craig Erlam. The alliance is struggling to meet advertised quotas due to ongoing political crises or even 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.
In these conditions, one of the solutions for OPEC+ would be to authorize the countries that can, in particular Saudi Arabia and the United Arab Emirates, to increase their production to compensate for the production losses of the other producing countries, while maintaining the total production level.
(with AFP)
