Oil: Biden failed to convince Saudi Arabia
The members of OPEC+ have only opted for a symbolic opening of their floodgates.
The much-anticipated meeting of crude oil exporters united under the name OPEC+ yielded just a few extra drops of black gold. The thirteen member countries of OPEC and their ten allies, including Russia, have agreedto increase production by 100,000 barrels per day in Septembere”.
A ridiculous amount compared to world consumption (around 100 million barrels per day) or the increases of around 430,000 and then 650,000 additional barrels decided in the previous months.
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Members of the Saudi Arabia-Russia-led cartel have defied calls from Joe Biden. The American President traveled to Riyadh in mid-July and made friends with a country that had been frowned upon since the brutal assassination of dissident journalist Jamal Khashoggi in 2018. Washington had also agreed to sell anti-missile missiles to Riyadh and the United Arab Emirates (UAE) in hopes of getting more oil. As inflation in the United States hits its highest level in forty years three months before a key election deadline, Joe Biden wants to cut fuel prices.
A symbolic increase
The increase announced on Wednesday, according to observers “symbolic” or “almost insulting”, will not help to overcome the energy crisis. It immediately boosted crude oil prices, which then fell. By the end of the afternoon, a barrel of Brent was trading for less than $99.
OPEC+’s decision shows that the organization remains united and spares Russia, whose interests are diametrically opposed to Washington’s. The cartel insisted on Wednesday, “how important it is to maintain consensus “.
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In spring 2020, at the beginning of the pandemic, OPEC+ decided to drastically cut production. The aim was to avoid flooding the market when Covid-19 had more or less halted global activity and to support prices.
The alliance, which produces almost 40% of the world’s black gold production, then committed to gradually reopening its floodgates last spring. Almost a year later, this move is said to have brought production back to pre-Covid levels.
Limited capacity
But the situation is complex. Indeed, due to a lack of investment or due to more or less local political crises, many producers have not managed to return to their pre-epidemic production levels. Among OPEC+ members, only Saudi Arabia and the United Arab Emirates have real capacity to increase production. Again, these two countries hinted to Emmanuel Macron, who received Saudi Crown Prince Mohammed Ben Salman last week, that their room for maneuver is limited.
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OPEC+, which meets again on September 5, also fears a deterioration in global economic activity that would melt demand and prices. Those fears have caused the barrel of Brent to fall below $110 since early July, after months of rallies linked to the war in Ukraine and Beijing’s “zero Covid” policy.
However, the exporting countries, which benefit greatly from the high prices, have little desire to change the situation. Saudi Arabia, for example, saw its GDP increase by almost 12% in the second quarter of 2022 thanks to rising oil revenues.
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