A man walks past OPEC headquarters in Vienna on Tuesday ahead of the 45th meeting of the Joint Ministerial Oversight Committee and the 33rd OPEC and Non-OPEC Ministerial Meeting. OPEC members led by Saudi Arabia and allied members led by Russia will be meeting for the first time in the Austrian capital since spring 2020.
Joe Klamar / AFP via Getty Images
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Joe Klamar / AFP via Getty Images
A man walks past OPEC headquarters in Vienna on Tuesday ahead of the 45th meeting of the Joint Ministerial Oversight Committee and the 33rd OPEC and Non-OPEC Ministerial Meeting. OPEC members led by Saudi Arabia and allied members led by Russia will be meeting for the first time in the Austrian capital since spring 2020.
Joe Klamar / AFP via Getty Images
In Vienna on Wednesday, the OPEC+ alliance is expected to consider cutting oil production by up to 1 million bpd – a quantity that could send oil and gas prices back up after weeks of trending trends. downward direction.
Meeting of 24 oil producing countries OPEC +including Russia, coming at a time when most The world is battling with soaring energy costs. Supply cuts could also exacerbate tensions between Saudi Arabia and the US, where President Biden is trying to rein in gas pump prices ahead of the midterm elections.
OPEC+, established in 2016, consists of 13 Organization of Petroleum Exporting Countries and 11 other non-OPEC members.
It is not clear how much of a price increase the supply cut will cause. The world consumes up to 100 million barrels of oil a day, so taking 1 million barrels of oil off the market would have a significant impact. News of the proposed cuts sent oil prices up $3 a barrel on Tuesday.
The move can be seen as an attempt by Saudi Arabia to raise prices, which reached up to $120 a barrel throughout the spring but began to ease concerns about a slowing global economy. They fell below $90 per barrel in September.
Observers say a sign of the alliance’s renewed focus is that this is the first face-to-face meeting since the pandemic began.
Yasser Elguindi, head of macro research at Energy Aspects, said there is a perception that Saudi Arabia is trying to push prices back to or above $100 a barrel by cutting production and tightening the market. . He said the extent of the proposed cuts had surprised everyone.
“OPEC is trying to shock and terrify with a massive output cut number that will get everyone’s attention,” he said. “And they’re trying to support prices to keep them from falling further.”
Elguindi said that the reduction in production would be a complete reversal to the recent policy towards OPEC+. The last time the group cut oil production was in May 2020, when demand plummeted in the early days of the coronavirus pandemic.
Since then, it is gradually increasing production. Then last month, the group switched gears and cut the market by 100,000 barrels. That’s a tenth of what analysts predict OPEC+ could announce on Wednesday.
This move could be seen as a rebuke to President Biden, who went to Saudi Arabia Arab in the summer to call to increase production. This is despite Biden’s comments in the past that he considers the kingdom a pariah state. He also publicly blamed Saudi Crown Prince Mohammed bin Salman for his involvement in the death of Saudi journalist Jamal Khashoggi at the Saudi consulate in Istanbul in 2018.
President Biden and Saudi Crown Prince Mohammed bin Salman (far right) attend the Gulf Cooperation Council July 16 in Jeddah, Saudi Arabia.
Evan Vucci / AP
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Evan Vucci / AP
President Biden and Saudi Crown Prince Mohammed bin Salman (far right) attend the Gulf Cooperation Council on July 16 in Jeddah, Saudi Arabia.
Evan Vucci / AP
“Clearly this is not the outcome Biden wanted when he went to Saudi Arabia to look for more oil,” said Jacques Rousseau, chief executive officer of ClearView Energy Partners. “And so that could certainly be an issue in the future.”
Saudi Arabia is also concerned about oil spills from the emergency reserves of Western nations. Rousseau said about 180 million barrels have been shipped globally since March, and 75% of that (about 134 million barrels) has come from US Strategic Oil Reserve.
“This is a very important release of reserves, putting global supply ahead of demand,” he said. “So that’s one of the reasons why Saudi Arabia can lead OPEC+ to take some oil off the market, so that supply and demand can be more balanced.”
A significant cut in oil production could also help Russia, the OPEC+ co-chair. Its economy relies on energy revenues, now crucial to its war effort in Ukraine. Despite the sanctions, Russia did not experience a large reduction in production.
That could change later this year, when the European Union is expected to strengthen sanctions on Russia. Elguindi says it is interesting to note that the Russians have – so far – never asked for production cuts.
“And about a week ago, they came and asked OPEC to cut production by a million bpd,” he said. “I think it’s a recognition that they’re going to lose some volume in the future and whatever they’re going to lose in volume, they need to make up for it with price.”
Rousseau said that even if OPEC+ announces a sharp drop, Russia’s output won’t really go down – because the country is already producing below its quota due to sanctions and inability to develop investment. in the new oil infrastructure.
Saudi Arabia may need to handle the bulk of any potential output cuts, he said.
