OPEC+ slows pace of production increases
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The member states of the Organization of the Petroleum Exporting Countries (OPEC) and their allies (which together form OPEC+) decided on Wednesday August 3 to slow the pace of production increases. The representatives of the thirteen members of the organization and their ten partners are thus resisting the calls of the American president, Joe Biden, to open the oil floodgates further in an attempt to stem the surge 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: namely “100,000 barrels per day”compared to some 432,000 then 648,000 additional barrels set for the previous months, the alliance announced in a press release after their meeting, which was held in Vienna.
Prices went up immediately, “something to disappoint the American president”, reacted to Agence France-Presse Tamas Varga, of PVM Oil Associates. Edward Moya from Oanda quipped about “the smallest increase in the history of OPEC+, which will not help to overcome the current energy crisis”. ‘The Biden administration won’t be thrilled’he estimated, predicting “a setback in US-Saudi relations”. Others, like Stephen Brennock of PVM Oil Associates, saw it “a symbolic measure to appease” Joe Biden.
Low reserve capacities
The twenty-three members of OPEC+ were to decide on a new strategy, as their current agreement comes to an end. They have returned to pre-pandemic production levels. In the spring of 2020, the group had chosen to leave millions of barrels of oil underground, so as not to flood the market with crude oil that it could not absorb due to a collapse in demand.
Hoping to influence the decision, Joe Biden had visited Saudi Arabia for the first time as President of the United States in mid-July, and had stayed away from his remarks on a State “outcast” after the assassination of the dissident journalist jamal khashoggi. His goal was to convince the kingdom to pump more to curb soaring fuel prices.
Through its decision, OPEC+ demonstrates that it remains united and spares Russia, whose interests are diametrically opposed to those of Washington. In the press release, she insists on “the importance of maintaining the consensus essential to the cohesion of the alliance”.
Last week, the French President, Emmanuel Macron, was also at the maneuver by receiving the Saudi Crown Prince, Mohammed Ben Salman. At the end ofa meeting denounced by human rights defendersthe two leaders said they wanted “intensify cooperation” for “mitigating the effects in Europe, the Middle East and the world” of the war in Ukraine.
Beyond geopolitical issues, the recent relative decline in oil prices, in a context of fears of recession, may have prompted OPEC+ to play it safe. Since their peaks last March at levels not seen since the 2008 financial crisis, the two crude benchmarks, Brent and WTI, have lost more than 26%. The cartel is also taking advantage of the current situation. Saudi Arabia recorded 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 low reserve capacities. OPEC+ is indeed struggling to respect the quotas displayed, due to prolonged political crises or even the lack of investment and maintenance of infrastructure during the pandemic. Russian production, under the yoke of Western sanctions in connection with the invasion of Ukraine, is also reduced.
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