OPEC+ has slowed the pace of production increases

The member states of the Organization of the Petroleum Exporting Countries (OPEC) and their allies (which make up OPEC+) decided on Wednesday August 3 to slow down the pace of production increases. The representatives of the thirteen members of the organization and their ten partners thus resisted the calls of the American president, Joe Biden, to open more oil channels in an attempt to prevent the rise in prices.

OPEC, led by Saudi Arabia, and its allies led by Moscow, agreed on an almost ridiculous increase in production for the month of September: “100,000 barrels per day”compared to about 432,000 then 648,000 more barrels set in previous months, announced the alliance in a press release after their meeting, held in Vienna.

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The price went up immediately, “something to disappoint the president of America”, reacted to Agence France-Presse Tamas Varga, of PVM Oil Associates. Edward Moya from Oanda joked “the smallest increase in the history of OPEC+, which will not help to overcome the current energy crisis”. ‘The Biden administration will not be happy’he estimated, prophesying “a failure in US-Saudi relations”. Others, like Stephen Brennock of PVM Oil Associates, see it “a symbolic measure of consolation” Joe Biden.

Low reserve capacity

The twenty-three members of OPEC+ will decide on a new strategy, because their current agreement will expire. They are back to pre-pandemic production levels. In the spring of 2020, the group chose to leave millions of barrels of oil underground, so as not to flood the crude oil market that cannot be absorbed due to the collapse of demand.

Hoping to change the decision, Joe Biden first visited Saudi Arabia as US president in mid-July, and distanced himself from his one-state speech. “rejected” after the killing of dissident journalist Jamal Khashoggi. His goal is to convince the kingdom to pump more to counter the rise in fuel prices.

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Through its decision, OPEC+ has shown that it remains united and saved Russia, whose interests are at odds with those of Washington. In the press release, he insisted “The importance of maintaining consensus is essential to the unity of the alliance”.

Last week, the French President, Emmanuel Macron, was also in the maneuver by receiving the Saudi Crown Prince, Mohammed Ben Salman. At the end of a meeting criticized by human rights defenders, the two leaders said they wanted “strengthening cooperation” with “Reducing the effects in Europe, the Middle East and the world” in the war in Ukraine.

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Beyond geopolitical issues, the recent relative decline in oil prices, in a context of recessionary fears, may have prompted OPEC+ to play it safe. Since their peaks in March at levels not seen since the financial crisis of 2008, the two benchmark crude oil, 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, fueled by black gold.

Except for Saudi Arabia and the United Arab Emirates, other members also have low reserve capacity. OPEC+ is actually struggling to respect the quotas shown, due to prolonged political crises or even the lack of investment and maintenance of infrastructure during the pandemic. Production in Russia, under the yoke of Western sanctions related to the invasion of Ukraine, was also reduced.

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The World with AFP

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