OPEC+ cuts oil production amid recession fears – 09/05/2022 at 21:40

OPEC+ countries meet in Vienna to discuss their oil production strategy (AFP/JOE KLAMA)

OPEC+ countries decided on Monday to reduce their production to support prices amid fears of a recession, the first in more than a year and the severe cuts made due to the Covid-19 pandemic. .

The representatives of the thirteen members of the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and their ten allies led by Russia, agreed to “return to quotas in August” , which is a low of 100,000 barrels from September, the Vienna-based alliance said in a statement.

The group, which met via videoconference, opened the door to new discussions before the next meeting on October 5, “to respond as needed to market developments”.

In the course of its monthly meetings, OPEC+ resisted calls from the West to open its gates more widely.

The increase in hidden words against the announced reduction, the United States reacted by calling on Monday for a balance between supply and demand for energy.

US President Joe Biden “is clear that energy supply must match demand to support economic growth and lower consumer prices in America and around the world,” according to a House statement. White.

“This symbolic drop is not a real surprise after the rumblings of recent weeks,” Caroline Bain, analyst at Capital Economics, reacted in a note.

The Saudi Energy Minister, Abdelaziz bin Salman, seems to have opened the door, ten days ago, to the assumption of a cut, criticizing a market that has “fallen into a vicious circle of low liquidity and more order”.

Hit by a gloomy global economic outlook, the prices of two global benchmarks of crude oil have fallen in recent weeks from their March highs, near $140 per barrel.

Around 7:20 pm GMT, the price of a barrel of Brent from the North Sea fell by 0.53%, to 95.23 dollars, and WTI, the benchmark for the North American market, gained 2.3%, to 88.87 dollars .

– “Central Petroleum Bank” –

“This decision shows that we are ready to use all the tools at our disposal”, commented the Saudi minister, in an interview with the financial agency Bloomberg. “We will be attentive and dynamic to support the stability and efficiency of the market.”

The alliance “implies that it will act to support prices if they collapse”, for example if there is a return to Iranian oil, explained Matthew Holland, geopolitical analyst for the research institute Energy Aspects.

For US President Joe Biden, who visited Saudi Arabia for the first time as President of the United States in mid-July to try to influence Riyadh’s strategy, this was “a blow”, as by Craig Erlam, an analyst at the OANDA trading platform.

For him, the “political damage” caused by this controversial visit is “pure waste” and the result is “worse” than before this initiative.

“Saudi Arabia and OPEC+ are the +Central Oil Bank+”, said Bjarne Schieldrop, an analyst at the Swedish bank SEB. “And it’s better not to try to fight them.”

Moscow, the pillar of the group with Riyadh, for its part arouses “a lot of uncertainty” related in particular to “the declaration of the leaders of the G7 about the capping of oil prices in Russia”, according to the words of the Deputy Prime Minister. handles energy issues. , Alexander Novak.

– Question of “credibility” –

Another element to consider is the regular inability of OPEC+ to fill its quotas.

“Current production and quotas are now disconnected, so it’s a matter of credibility,” Schieldrop pointed out. Estimated to be around 3 million barrels per day below stated goals.

In the spring of 2020, the cartel made several cuts in the face of the collapse of demand due to the pandemic. A year later, he began to open the floodgates again, but with great difficulty.

The extended political crisis, or the lack of investment and continuity during the pandemic that is now disabled oil infrastructure: many countries in the group like Angola or Nigeria can not pump anymore.

Only Saudi Arabia and the United Arab Emirates seem to have spare production capacity.

But the analyst said that Riyadh is currently flowing around 11 million barrels of oil per day, a level it has reached only twice in its history, and only temporarily.

“The current level is way above his comfort level,” Schieldrop pointed out.

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