The consequences of the scandalous disruption of the OPEC+ meeting have been named: a barrel could fall to $40

Analyst Krichevsky: “The mechanism for regulating oil prices risks breaking down”

The postponement of negotiations between the main oil-producing countries within the framework of the OPEC and OPEC+ alliances led to a drop in oil prices below $82 per barrel. The reason for the failure of the summit was disagreement between Saudi Arabia and other Middle Eastern countries regarding production cuts. Riyadh believes that sales of raw materials should be cut again, since only such a policy will strengthen fuel prices; other producers, on the contrary, are going to increase exports to increase current profits. Russia, against which Western energy sanctions continue to apply, has to vary between the positions of its partners in the oil-producing alliance.

The disruption of negotiations between OPEC countries, as well as meetings of the monitoring committee and heads of OPEC+ delegations, which were supposed to take place in person in Vienna on November 25-26, does not yet look dramatic: the meeting was postponed for 5 days. But a feeling of anxiety hovers over the oil market.

The leaders of the largest producing states were not allowed to sit at the round table due to serious contradictions that arose between Saudi Arabia and its Middle Eastern neighbors. “Riyadh intends to prolong the reduction in hydrocarbon production in order to maintain oil stock prices at the current level (above $80 per barrel), but for this it is necessary to enlist the support of other OPEC+ delegates,” explains BitRiver financial analyst Vladislav Antonov. Meanwhile. According to the expert. Other countries participating in the alliance do not agree with the position of the Saudis, in particular the United Arab Emirates and Iraq, which have significantly increased the export of their hydrocarbons in recent months. “In 2024, Baghdad plans to increase foreign oil supplies by 250 thousand barrels per day,” reports the national Iraqi company Somo. “OPEC+ has nothing to do with the issue of exports, so we can sell any volume of raw materials, based on the permissible production level.”

It is obvious that a split has emerged in the OPEC+ alliance, which previously acted as a close-knit group. Since November 2022, members of the association have reduced production by 2 million barrels. This decision is valid until the end of this year. Then, following the June meeting of the cartel, oil suppliers announced the extension of this deal until 2024. Russia and Saudi Arabia removed the most oil from the market, reducing their daily production capacity by a total of 1.66 million barrels per day (in excess of the previously designated export quotas). “For now, Moscow and Riyadh have additional voluntary cuts. The opinions of other resource-producing countries, of course, are taken into account, but are not put to a vote,” says Sergei Suverov, investment strategist at Arikapital Management Company, associate professor at the Financial University under the Government of the Russian Federation. At the same time, according to him, the current situation on the global energy market is not in favor of suppliers. Both European and Asian buyers of energy resources are trying to save on energy consumption in the coming winter: some have already managed to stock up on hydrocarbons for future use, while others are reducing import purchases in the hope of purchasing raw materials at summer, junk prices.”

In addition, according to Bloomberg, OPEC+ has encountered difficulties in negotiations with African countries, whose supplies of “black gold” to the world market are small. “Most likely, at the upcoming OPEC+ meeting, Saudi Arabia wants to further reduce oil production quotas to stabilize hydrocarbon prices,” suggests Freedom Finance Global analyst Vladimir Chernov. Only Riyadh itself does not plan new restrictions on its production volumes, but insists on reducing exports by other members of the alliance, perhaps in order to redistribute quotas with other OPEC+ members in its favor.

“To cover their own budget deficit, the Saudis need a barrel price of at least $86-90 per barrel, that is, at least $5-7 higher than the current level,” says financial analyst, author of the economic telegram channel Alexey Krichevsky. For the first time since the pandemic, the kingdom’s budget deficit in the third quarter of 2023 will rise to a record level of $9.5 billion. Riyadh is investing huge amounts of money in the “non-resource” sector. The Saudis intend to abandon hydrocarbon dependence, but this turn requires significant investment. “Therefore, the essence of Riyadh’s claims to the rest of OPEC members is quite obvious: the kingdom is reducing its production, but other producing countries, mainly the United States, which are not participating in the alliance’s trade dialogue, are taking advantage of the moment and increasing their own production and export of energy resources,” the expert explains .

To continue persuasion with their partners in the oil-producing alliance, the Saudis have so far received 5 additional days.

In the current conditions, it is best for Russia to take a wait-and-see approach. Mutual claims of OPEC and OPEC+ participants risk ultimately causing a quarrel between the producing states. Then the mechanism for regulating oil prices, which has been operating quite effectively for several years, may break down, warns Krichevsky. In this case, prices for “black gold” are in danger of falling 1.5-2 times below existing levels: up to $40 per barrel.