The OPEC + agreement will end in August. What will happen next?
In August, the OPEC + agreement will end, the one that binds the cartel countries to Russia on the definition of production quotas. What will happen next? Delegates have been discussing this in recent days, according to Bloomberg, and let's try to understand the results.
Obviously, the pact faces numerous uncertainties and difficult situations, not least the relationship with one of the main members of the group, Russia.
Saudi Arabia stressed that Russia is an integral part of OPEC + despite Russia's aggression in Ukraine, stressing that OPEC + is not an alliance born of politics, but of market management. Now it is a question, for the founding countries of the Cartel, to understand whether it is appropriate to keep Russia in the agreement, even at the cost of irritating Europe and the USA.
There is also a huge problem linked to OPEC's reserve capacity, that is, its real possibility of meeting the additional demand, that is, of being able to produce more. The very fact that reserve production capacity is so low, therefore unable to truly control prices, makes the deal at risk. What is the use of having inside Russia if it does not have an offer that can calm prices if they are deemed excessive?
Questions about OPEC's actual reserve capacity only cloud OPEC's future. OPEC production decreased – not increased – in May, despite the increase in quotas for its members. While the market predicted that OPEC would not hit production targets in May as a group, the drop in production was a surprise that drove prices crazy. Saudi Arabia managed to increase its production by 60,000 bpd that month, but this increase was more than offset by losses in Libya, Nigeria, Gabon and other countries. What good is a cartel that cannot regulate the offer?
According to the International Energy Agency, Saudi Arabia and the United Arab Emirates have another 2.2 million barrels per day which they can increase on top of what's left in the withdrawal of their quotas. At this point, however, they should recalibrate the offer to the detriment of other countries, but this would damage OPEC +.
Thanks to our Telegram channel you can stay updated on the publication of new articles of Economic Scenarios.
The article The OPEC + agreement will end in August. What will happen next? comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/laccordo-opec-terminera-ad-agosto-cosa-succedera-dopo/ on Sun, 19 Jun 2022 07:26:47 +0000.