Saudi Energy Minister Prince Abdulaziz bin Salman at a conference in Bahrain on 16 May 2022 (AFP/Mazen Mahdi)
After months of wait-and-see despite soaring prices, OPEC+ members decided on Thursday to move up a gear and boost their production, responding to calls from Westerners without upsetting Russia.
Monday’s announcement by the 27 countries of the European Union of an embargo on the bulk of Russian oil has heightened fears of shortages and visibly changed the situation for the cartel, which underlines “the importance of stable and balanced markets “.
Representatives of the thirteen members of the Organization of the Petroleum Exporting Countries (OPEC), led by Riyadh, and their ten partners led by Moscow have agreed to increase July production “by 648,000 barrels per day”, according to a statement published following another whirlwind meeting. The volume was previously set at 432,000 barrels.
This is a turning point for OPEC+, which had limited itself since the spring of 2021 to modest increases in its quotas, with the aim of gradually regaining its levels before the Covid-19 pandemic.
The alliance had so far never deviated from its line, even following the invasion of Ukraine by Russia which accentuated the tensions on the market.
Prices thus climbed to peaks not seen since the 2008 financial crisis, Brent from the North Sea, the benchmark for black gold in Europe, peaking on March 7 at 139.13 dollars a barrel and American WTI at $130.50.
– Unity maintained –
Chart showing destination countries for Russian oil exports, according to the latest available data from the World Bank (2020) (AFP/)
For Jeffrey Halley, an analyst at Oanda, OPEC+ has given the United States and Europe “a few bones to chew on” amid speculation regarding a possible trip by American President Joe Biden to the Middle East, “while at the same time preserving unity”.
An article in the Wall Street Journal had mentioned a possible sidelining of Russia, in difficulty to reach its quotas due to Western sanctions, but OPEC + remained united.
The increase in production is distributed proportionally between each of the members, with identical objectives for Moscow and Riyadh, the two pillars of the alliance.
The 23 members, which pump around half of the world’s oil, have been working together since 2016 to adjust their supply and regulate the price of a barrel.
The increase decided on Thursday, even if it is larger than expected, “will not significantly relieve a market in need of Russian oil”, argues Jeffrey Halley, especially since many states are struggling to meet the objectives.
“Prices will therefore remain at a high level, Russia leaves satisfied,” he summarizes.
The Deputy Prime Minister in charge of Energy Alexandre Novak also welcomed the decision of OPEC +, taken according to him to anticipate the strong summer demand.
He also castigated the embargo approved Thursday by the 27 EU countries, believing that the Europeans will be the first to “suffer”.
– Break the ice –
Russian Foreign Minister Sergei Lavrov and his Saudi counterpart Faisal bin Farhan, in Riyadh on June 1, 2022, for a meeting of the Gulf Cooperation Council (AFP/Fayez Nureldine)
This turn of OPEC + comes following a series of calls from all sides, in particular from the White House wishing to curb prices at the pump.
The G7 countries had once more pointed out last week the “key role” of OPEC + in the face of “tightening of international markets”.
Saudi Foreign Minister Prince Faisal bin Farhan reaffirmed at the recent World Economic Forum in Davos that “the kingdom has done what it can”, according to the business press.
“The situation is more complex than simply adding barrels to the market,” he insisted, as Gulf economies reap juicy profits from a high barrel.
“We may be at a crossroads,” commented Ipek Ozkardeskaya, from Swissquote, interviewed by AFP.
Thursday’s decision is “a sign that the ice between the Saudis and the Americans may finally be melting following two years of icy relations”.
If the ties between the two countries are strengthened, Ryad would then agree to “pump more to compensate for the losses of Russian oil”, she continues.
What “isolate Russia even more and perhaps change the course of the war”.
