Oil, these are the real (economic) objectives of the OPEC cuts
OPEC's cut in oil production favors the interests of Moscow and harms those of Washington, but it is not the result of political decisions. Here because
OPEC +, an organization that brings together many of the major oil exporting countries, agreed on Wednesday to cut its crude oil production by 2 million barrels a day – the deepest cut in over two years, which it is equivalent to 2 per cent of world oil output and comes close to the winter season, when energy consumption is generally higher.
The OPEC + cut aims to raise the price of oil, which was trading around $ 90 a barrel before Wednesday, up from $ 120 three months earlier. Today, given the renewed fears of supply shortages compared to demand, it stands at 93 dollars a barrel, and according to some forecasts it could reach 100 by December (the estimates prior to the announcement were bearish).
THE SURPRISE MOVE OF SAUDI ARABIA
One day after the agreement on the cuts, Saudi Arabia – which OPEC + leads, together with Russia – announced a lowering of the prices of its crude oil destined for north-western Europe and the Mediterranean; on the other hand, the qualities of crude oil sold in Asia, its main market, maintain a price above the regional average.
This is not an absolute novelty: he had done the same , for Europe, also in September. But that's a surprise nonetheless, as it was expected that Riyadh would immediately put pressure on consumers after the cut in OPEC +. It should be remembered that the country sells its oil mainly through long-term contracts – and not delivery contracts for the following month, therefore – in Asia, and specifically to China, Japan, South Korea and India.
THE POSITIONS OF THE UNITED STATES AND RUSSIA
The United States, opposed to the rise in oil prices for economic and electoral reasons, has criticized the cuts by OPEC +, going so far as to accuse the organization of having sided with Russia: Moscow – the other leader of the group, along with Riyadh – should in fact benefit from the rise in the price of crude oil, as it depends precisely on the revenues from oil exports. Revenues that the United States, the European Union and the rest of the G7 would like to contain through aprice cap , that is, a price ceiling, the value of which has not yet been fixed.
Since the beginning of the invasion of Ukraine, Russian oil exports to Europe have decreased, while those to India and China have increased significantly: it must be remembered, however, that Russian barrels are sold to the two countries with strong discount compared to the international benchmark .
THE REAL GOAL OF OPEC +
The OPEC + cut, therefore, favors the interests of Moscow and harms those of Washington, but it is not the result of political decisions. How much, rather, of market valuations. Raad Alkadiri, energy analyst at Eurasia Group, explained toForeign Policy that the organization "is evaluating market sentiment, fears of an imminent recession and the consequences this will have on demand, and has decided to anticipate the curve" . It is, therefore, a "proactive move to stop a further drop in prices".
In other words, OPEC + exporters are preparing to deal with a possible economic downturn, due to high inflation, which would cause both the demand and the value of crude oil to collapse. By pushing their prices up now, in advance, they can increase their sales revenue before the economic outlook worsens.
While the OPEC + cut undoubtedly resembles a "slap in the face" by Saudi Arabia and the United Arab Emirates – members of the organization but also prominent Middle Eastern partners of the United States – to the administration of Joe Biden, the group's decision does not it is aimed at hitting or punishing the White House. As the New York Times wrote, "OPEC Plus acts in its own interests", that is, "to support the price [of oil, ed .] Per barrel".
THE CUTS, THE REAL THOSE
Despite the commitment to reduce output by 2 million barrels per day, the actual reduction in the market from current levels will be lower – perhaps by 1 million barrels, or even 800,000 – because a good portion of OPEC + members it is already producing less than the quotas established at previous meetings: the fault of the lack of investment in the oil & gas industry. This also applies to Russia.
Therefore, Saudi Arabia (which had increased its output in July and August) and the United Arab Emirates will be responsible for the new cuts, penalizing itself for all the others.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/opec-taglio-petrolio-obiettivi/ on Thu, 06 Oct 2022 13:27:49 +0000.