The countries of the OPEC+ decided this Monday to reduce their production of Petroleum in October to support prices in the face of fears of a recessionfor the first time in over a year.
The representatives of the 13 members of the Organization of Exporting Countries of Petroleum (OPEC) and its 10 allies agreed to “return to the quotas for the month of August”, that is, a reduction of 100,000 barrels in relation to September, the alliance, whose headquarters are in Vienna, announced in a statement.
The group, which met by videoconference, leaves the door open for new negotiations before the next meeting on October 5, “to respond if necessary to market developments.”
Until now, the OPEC+ has resisted calls from Western countries to turn on the tap to contain rising prices and rampant inflation.
After the announcement of the measure, the prices of the two world crude references rose more than 3%, to $96.40 a barrel of Brent from the North Sea and $89.80 that of WTI, around 12:50 GMT.
“This symbolic decline is not a surprise after the rumors of recent weeks,” Caroline Bain, an analyst at Capital Economics, reacted in a note.
The United States stated that the production of Petroleum it must respond to demand to sustain global growth.
President Joe Biden “was clear that energy supply must match demand to sustain economic growth and lower prices for American consumers and consumers around the world,” his press secretary said in a statement.
Prudence
The Saudi Minister of Energy, Abdelaziz bin Salmán, seemed to open the door, ten days ago, to this hypothesis.
The minister alluded to a market “plunged into a vicious circle of little liquidity and extreme volatility.”
Impacted by gloomy global economic prospects, prices recorded their third consecutive monthly decline in August, far from their peak levels, when they hovered around $140 a barrel.
“It is better to hit the brakes now. It is better to be prudent,” said Bjarne Schieldrop, an analyst at Seb, to explain the decision of the OPEC+.
“Clearly the group wants to keep prices high,” said Oanda analyst Craig Erlam.
In addition, “he may fear that the return of Iranian crude to the market will tip the market balance in favor of supply and that prices will fall,” he added.
Everything will depend on how the negotiations on the Iranian nuclear program progress.
Recently, hopes were revived that an agreement could be reached, which would lead to an easing of US sanctions, especially with regard to the Petroleum.
But that was before the United States noted that Tehran’s response to the European Union’s (EU’s) proposed text “unfortunately […] It wasn’t constructive.”
For its part, Russia, a key member of the group along with Saudi Arabia, evoked “many uncertainties” linked in particular to “the declaration of the G7 leaders on the limitation of the price of Petroleum Russian”, in the words of the Russian deputy prime minister in charge of energy issues, Alexander Novak.
Question of “credibility”
Another element that must be taken into account is the inability of the OPEC+ to achieve your goals.
“Current production and quotas are currently disconnected, it’s a credibility issue,” Schieldrop said.
The multiple political crises or the lack of investment and maintenance during the pandemic have weakened the oil infrastructure: many countries in the group, such as Angola or Nigeria, cannot extract more and it seems that they have reached the maximum of their capacities.
Only Saudi Arabia and the United Arab Emirates could have production capacities yet to be used.
It is also a new message for Western countries, which are doing their best to curb inflation.
In their latest announcement to date, the seven most industrialized countries decided on Friday to “urgently” limit the price of Petroleum Russian and thus contain the resources that Moscow obtains from the sale of hydrocarbons.
Russia warned that it will not sell more Petroleum to the countries that adopt this unprecedented mechanism.
This could reduce supply on the market, which could contribute to a further rise in prices that, despite their recent fall, remain historically high and extremely volatile.
