OPEC: if oil is expensive it is not our fault, but yours!
OPEC meets Thursday for its regular monthly review of production policy. This time around, no one seems to be expecting any surprises, and the reason is that for the past couple of months, the cartel and its Russian-led OPEC + allies have been in remarkable sync. And they seem to have had enough of consumer pressure.
The UAE minister of energy sounded a sober note earlier this week, hitting Western countries for having what can only be described as a self-righteous attitude towards fossil fuels.
“I think in COP 26 all producers felt unwelcome and unwanted, but now we're superheroes again, that's not going to work out,” S uhail Al-Mazrouei told the Global Energy Forum organized by the Atlantic Council in Dubai. The UAE's top energy official went on to explain the basics of the oil industry, pointing out that production is tied to long-term planning, which is incompatible with the demands – and actions – of cutting investments to put more money into renewable energies.
This should have been obvious to anyone familiar with the basics of economics, but it seems to have escaped some perpetrators in Europe and the United States. Their reasoning is that oil producers have an interest in selling their oil as it is in demand, because in 20 years, according to climate change plans, demand will not be as strong.
It is a valid reasoning and one that the oil producers themselves have recognized. It is this, at least in part, that motivated the UAE and Saudi Arabia to invest in increasing their production capacity. The United Arab Emirates aim for 5 million bpd of total production, and the Saudis aim for 13 million bpd of production capacity.
This should be good news for oil-hungry importers, but this capacity is not in line with demand this year as importers, especially European ones, are eager to reduce their dependence on Russian oil now, not in between. 12 months. The obvious substitute for Russian oil would be Middle Eastern oil, but that's easier said than done hic et nunc. Some producers are not even able to get close to the quotas agreed with the OPEC + scheme, and now they are asked to increase production!
Furthermore, diverting oil flows from Asia to Europe makes very little strategic sense: Europe is a declining oil market, unlike Asia. In other words, Gulf producers don't really have an incentive to sell more oil to Europe. Nor do they have an incentive to join Western condemnation of Russia. The EU's own green energy policy condemns it to its political irrelevance to OPEC:
"When it comes to OPEC + – I take the privilege of saying they have been around for 35 years, and I know very well that we have managed to separate our political differences from what is for the common good of us all," said the minister. energy Saudi Abdulaziz bin Salman to CNBC's Hadley Gamble this week on the Russian issue.
"This typical OPEC + way of acting, so when we walk into the OPEC meeting room, or the OPEC building, everyone leaves their national policy at the door of the building, and thinks for the collective good," he said. also bin Salman. Indeed, suffice it to recall that OPEC involves both Saudi Arabia and Iran, the two archenemies of the Middle East, and they have managed to act together on oil despite their differences.
OPEC, and OPEC +, appear to be stronger than ever. It's hard to believe that just two years ago, Saudi Arabia and Russia clashed over oil policies and even engaged in some kind of war over oil production, pushing prices down still pre-pandemic. Eventually they were forced to agree OPEC has its priorities and respects them, even in the face of growing pressure from its political partners in the West. It is these now who have to prove that they are reliable and, at least, medium-term business partners. Otherwise, expecting more oil from OPEC will be in vain
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The OPEC article: if oil is expensive it is not our fault, but yours! comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/opec-se-il-petrolio-e-caro-non-e-colpa-nostra-ma-vostra/ on Thu, 31 Mar 2022 16:55:53 +0000.