Oil Exporters Make Markets, Not War — Global Issues

A view of the bulk fuel plant in Dhahran, Saudi Arabia. Since the kingdom needs oil prices to stay high to balance its budget, it has been pushing OPEC and its allies to decide to cut production since Nov. 1 CREDIT: Aramco
  • by Humberto Marquez (caracas)
  • Associated Press Service

The OPEC+ alliance (13 members of the organization and 10 allied exporters) has decided to remove two million barrels a day from the market, in a world that consumes 100 million barrels a day. This decision was driven by the two largest producers, Saudi Arabia – OPECof de facto leadership – and Russia.

The cuts “are for economic reasons, because Saudi Arabia depends on relatively high oil prices to keep their budget balanced, so it is important for Riyadh that barrel prices do not fall below $80,” said Daniela Stevens, director of energy. in Inter-American Dialogue tell IPS.

Benchmark prices at the end of October were $94.14 per barrel for Brent North Sea crude in the London market and $88.38 for West Texas Intermediate in New York.

“At the time of the cut decision (October 5), oil prices were down 40% since March, and OPEC+ countries were concerned that the expected slowdown in the global economy – and along with that’s the demand for oil – which will significantly reduce their revenue.” Stevens said.

With the cuts, “OPEC+ hopes to keep Brent above $90 per barrel,” remains to be seen, “because due to lack of investment, the actual cut would be between 0.6 and 1.1 million. barrels per day and not the two more remarkable things. a million,” added Stevens from her organization’s headquarters in Washington.

A month ago, the alliance set a joint production ceiling of 43.85 million bpd, excluding Venezuela, Iran and Libya (OPEC partners are exempt due to their respective crises), which would allowing them to deliver 48.23 million bpd to the market. .

But market operators estimate that they are currently producing between 3.5 and 5 million barrels per day below the maximum considered.

The alliance includes 13 OPEC partners: Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates and Venezuela, plus Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia , Mexico, Oman, Russia, Sudan and South Sudan.

The giants of the alliance are Saudi Arabia and Russia, producing 11 million barrels per day, followed by Iraq (4.65 million), United Arab Emirates (3.18), Kuwait (2.80) and Iran (2.56 million).

The United States suffered a blow

US President Joe Biden is “disappointed by OPEC+’s short-sighted decision to cut production quotas while the global economy is dealing with the continued negative impact of (President Trump’s) Ukraine invasion. Russia Vladimir Putin),” a White House statement said.

Gas prices in the United States have skyrocketed from $2.40 a gallon in early 2021 to a current average of $3.83 – after peaking at $5 in June – a burden on Biden. and his Democratic Party in the face of November 8 midterm congressional elections.

Biden visited Saudi Arabia in July, while the press reminded the public that during his 2020 campaign, he talked about making the Arab country “an enemy” because of its responsibility. leaders for the October 2018 murder in Istanbul of prominent opposition journalist living in exile Jamal Khashoggi.

The US president said he had made it clear to the powerful Saudi Crown Prince Mohammed bin Salman that he was responsible for this crime. But the impetus of his visit was to urge the kingdom to expand its taps to accommodate crude oil and gasoline prices.

As a result, the United States is frustrated with the production cuts promoted by Riyadh – double the million barrels per day predicted by market analysts – which, by increasing prices, benefits Russian revenue. , which must be located in Asia, at a discount, the type of oil that Europe. no longer buy from it.

Biden then announced the release of 15 million barrels of oil from the US strategic reserves – more than 600 million barrels in total in 2021 and just 405 million in October of this year – completing the 180 million-barrel release due to Biden. authorized in March, after the invasion of Russia. of Ukraine, that was originally supposed to happen in six months.

The change in Washington-Riyadh relations

Karen Young, a senior research scholar at the Center for Global Energy Policy at Columbia University in New York, wrote that “oil politics is entering a new phase as the US-Arab relationship Saudi Arabia goes down.”

“Both countries are now directly involved in each other’s domestic politics, which has not been the case in most 80-year bilateral relations,” she wrote.

“…. (M) ark has been predicted to be cut by about half. She added that the decision to announce larger cuts was hasty or politically motivated by the Saudi political leadership (rather than technical advice).

Saudi Arabia’s leaders could clearly see Biden as a sworn enemy to Iran, its arch-enemy in the Gulf region, with positions unfavorable to Riyadh in the conflict. conflict in neighboring Yemen, and will resent the accusations against the crown prince for Khashoggi’s murder.

Young said that “the accusation that Saudi Arabia has weaponized oil to aid Russian President Putin is extreme” and said “The Saudi leadership may think that keeping Putin in OPEC+ has more valuable than trying to influence the oil market without him.”

More market, less war

OPEC Secretary-General since August, Haitham Al Ghais of Kuwait, said on October 7 that “Russia’s membership in OPEC+ is crucial to the success of the deal… Russia is a major, major and influential party to the world energy map.”

Writing for specialized financial magazines Barron’s“It’s certainly true that the energy market is now highly politicized,” Young said.

“The United States is now a proponent of market manipulation, demanding support from the world’s essential swing producer, advocating price caps on Russian crude exports, and bans,” Young writes. fortunes in Europe.

For its part, Saudi Arabia’s Foreign Ministry dismissed criticism of OPEC+’s decision as “not based on facts” and said that Washington’s request to postpone the cuts for a month (until after the election) November, as the Biden administration is said to have requested) “will have negative economic consequences.”

In its most recent monthly market analysis, OPEC noted that “The world economy has entered a period of increased uncertainty and increased challenges, amid persistent, tightening inflation levels. currencies of major central banks, high levels of government debt in many regions as well as ongoing supply issues.”

It also addresses geopolitical risks and the rise of China’s COVID-19 containment measures.

The statement of the OPEC + alliance after the October 5 meeting was decided to cut two million barrels. .

Oil analyst Elie Habalian, who served as OPEC governor of Venezuela, also said that “despite Mohammed bin Salman’s sympathy for Putin, the cuts are due to his worries about the balance of the oil market.” world mine, not to support Russia.”

Latin America, pros and cons

Stevens said the prospect of oil opening this November means that, for regional importers, their fuels will be more expensive but perhaps not significantly, and net importers in Central America and The Caribbean will be hardest hit.

Exporters will benefit from higher prices. Brazil and Mexico have increased their fuel oil exports, and Argentina and Colombia have increased their crude oil exports. And higher prices will especially benefit Brazil and Guyana, which are boosting their production capacity.

Argentina could have benefited if it had started investing in manufacturing years ago, but financial instability prevented it from taking advantage of the moment. And Venezuela not only faces sanctions, but upgrading its aging oil infrastructure will require investments and time that the country does not have.

© Inter Press Service (2022) – All rights reservedOrigin: Inter Press Service


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