After months of waiting despite rising prices, OPEC+ members on Thursday decided to shift gears and ramp up production to respond to calls from westerners without angering Russia.
The announcement on Monday by the 27 countries of the European Union of an embargo on most Russian oil has increased fears of shortages and visibly changed the situation for the cartel, underlining “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 its ten partners led by Moscow have agreed to increase July production “by 648,000 barrels a day,” according to one-by-one releases Press Release Flash Meeting. The volume was previously set at 432,000 barrels.
This is a turning point for OPEC+, which had limited itself to modest increases in its quotas since spring 2021 in a gradual return to pre-Covid-19 levels.
Even after Russia’s invasion of Ukraine, which heightened tensions in the market, the alliance had never deviated from its line.
This took prices to highs not seen since the 2008 financial crisis, with North Sea Brent, the benchmark for black gold in Europe, peaking at $139.13 a barrel on March 7 and US WTI at $130.50.
For Oanda analyst Jeffrey Halley, OPEC+ has given the United States and Europe “some bones to chew on” amid speculation about a possible trip to the Middle East by US President Joe Biden “while maintaining unity.
A Wall Street Journal article had mentioned a possible sideline for Russia, which is struggling to meet its quotas due to Western sanctions, but OPEC+ remained closed.
The increase in production will be split proportionally between members, with identical targets for Moscow and Riyadh, the two pillars of the alliance.
The 23 members, which produce 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 hike approved on Thursday, while larger than expected, “won’t significantly relieve a market that needs Russian oil,” argues Jeffrey Halley, especially as many states are struggling to meet the targets. “The prices will therefore remain at a high level, Russia is leaving satisfied,” he summarizes.
Energy Deputy Prime Minister Alexandre Novak also welcomed OPEC+’s decision, which he says was taken to anticipate strong summer demand.
He castigated the embargo approved by the 27 EU countries on Thursday, believing that Europeans would be the first to “suffer”.
break the ice
This OPEC+ turnaround comes after a series of calls from all quarters, most notably the White House, to curb prices at the pump.
Last week, the G7 states again pointed out the “key role” of OPEC+ in view of the “shortening of international markets”.
Saudi Foreign Minister Prince Faisal bin Farhan reiterated 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 rolling out barrels,” he stressed, as Gulf economies reaped juicy profits from a tall barrel. “We may be at a crossroads,” Swissquote’s Ipek Ozkardeskaya told AFP.
Thursday’s decision was “a sign that the ice between the Saudis and the Americans could finally melt after two years of icy relations.”
If ties between the two countries were strengthened, Ryad would agree “to pump more to make up for the losses of Russian oil,” she continues. Which would “isolate Russia even more and perhaps change the course of the war.”
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