After months of ignoring oil consumers’ calls to open the taps, OPEC+ has finally agreed to step up production targets. But the real winner of the deal seems to be Saudi Arabia, not the drivers.
The Organization of the Petroleum Exporting Countries and a group of producers led by Russia on Thursday agreed to increase crude oil production by 648,000 bpd in both July and August, compared with 432,000 bpd. according to their previous commitment. However, the increased target follows a decline in Russian oil production since Moscow’s invasion of Ukraine in late February.
The major exporter’s crude oil production in April fell 950,000 bpd from its output in February, according to data from the International Energy Agency. The European Union earlier this week agreed to ban sea imports of oil and refined fuels from Russia.
The markets quickly reassessed how much of an effect the bullish target really had on the price. Brent crude fell to $113 a barrel after the Wall Street Journal reported on Wednesday that several OPEC members were exploring the idea of suspending Russia’s obligation to pump more oil under the production agreement. group’s expanded oil exports. Brent oil recovered above $117 per barrel following Thursday’s announcement.
Saudi Arabia’s abrupt change of heart seems to have little to do with oil prices – which have been in triple digits for at least three months – and more to do with currency diplomacy with Washington, from which Saudi Arabia Saudi Arabia is looking for better security than reassurance. This change comes after a series of visits by US officials to the kingdom.
President Biden, who has a friendlier relationship with the country’s leadership than his predecessor, is likely to visit later this month. Increasing oil production was a “central factor” in discussions of a possible visit, the magazine reported.
Another reason for the price rebound could be that many OPEC members have been unable to keep up with their target quota allocation so far this year.
The team will almost certainly fall behind its set target in the coming months. According to IEA data, even after taking Russia out of the equation, OPEC+ as a group produced 1.32 million bpd below its overall target in April. According to the IEA, many countries was unable to keep up with the increased targets because of “falling spare capacity and reduced operational efficiency”.
The only countries with any real spare capacity – that is, capacity that can be reached within 90 days and maintained over long periods of time – are Saudi Arabia and the United Arab Emirates . Between them, the two countries had spare capacity below 3 million bpd in April.
The plan to increase production also does little to address the risk that Russia may deliberately withhold oil barrels.
Helima Croft, head of commodity strategy at RBC Capital Markets, wrote in a recent report that the European Union’s ban on seaborne oil imports could prompt Russia to cut exports this summer.” to cause maximum economic loss.” Notably, a Lukoil executive wrote in a Russian newspaper that Russia should cut oil production by 20% to 30% to get better oil prices and avoid selling at a discount, Reuters reported. on Monday.
Thursday’s OPEC+ deal may have worked wonders for Saudi Arabia diplomatically, but it was an ocean of slump for oil markets.
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Appeared on 3rd June 2022, print edition titled ‘The OPEC Pact Won’t Help Oil Users.’
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