The OPEC+ countries are meeting this Wednesday in Vienna to discuss their oil production strategy for the coming months, while the United States and Europe have been increasing their production for months.
Until now, the Riyadh-led Organization of the Petroleum Exporting Countries (OPEC) and its Moscow-led allies have resisted calls to further open the floodgates to curb inflation fueled by energy prices. Month after month, the 23 members clung to the marginal openings of their floodgates.
But the current deal is coming to an end: On paper, they are back 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 that it could not absorb due to a collapse in demand. These drastic cuts are now a thing of the past and it is time to decide on a new path.
After the lightning meetings of the last few months, “there is much more uncertainty this time”says Craig Erlam, an analyst at Oanda.
Scheduled by videoconference, the meeting should start at 3:00 p.m. in Vienna, Austria, at the headquarters of the cartel.
Riyadh under pressure
How will Saudi Arabia, the alliance’s de facto leader and one of the only members with additional production capacity, respond to the White House request and various Western pressures? Away from your comments on a state “pariah” Following the assassination of dissident journalist Jamal Khashoggi, Joe Biden visited Saudi Arabia for the first time as US President in mid-July. His goal: to convince the kingdom to pump more to curb rising fuel prices.
Riyadh and its allies will have to decide whether to comply with their request by significantly increasing their production or whether to show solidarity with Russia by maintaining the same line.sums up Tamas Varga, from PVM Energy.
The meeting will show if “is the group still together, how committed is he to rebalancing the market and does President Biden have any influence on the cartel”Craig Erlam abounds.
Last week, French President Emmanuel Macron was also on the move as he received Saudi Crown Prince Mohammed bin Salman.
At the end of a meeting denounced by human rights defenders, the two leaders said they wanted “intensify cooperation” for “mitigate the effects 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 decline in oil prices, amid recession fears, could push OPEC+ to play it safe. Both global crude benchmarks hover around the $100 a barrel threshold, a far cry from the highs reached in early March: North Sea Brent had hit a high of $139.13 and US WTI. .at $130.50. Especially since the cartel is taking advantage of the current situation: the Saudi Arabian economy posted strong growth in the second quarter of 2022, fueled by black gold.
Any decision that is made is “probably has little impact” in the markets, warns Craig Erlam. The alliance is struggling to respect the quotas shown, due to protracted political crises or even a lack of infrastructure investment and maintenance during the pandemic. Russian production is also reduced, under the yoke of Western sanctions in connection with the invasion of Ukraine.
Under these conditions, one of the OPEC+ solutions 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, maintaining the total level of production
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