OPEC+ countries are preparing to adopt a new strategy after the Covid-19 pandemic at their meeting on Wednesday (3), with all eyes on how they will react in the face of rising oil prices.
Representatives of the 13 members of OPEC (Organization of Petroleum Exporting Countries), led by Saudi Arabia, and its ten partners (OPEC+), led by Russia, are at a crossroads.
They must decide whether to continue the current agreement, under the direction of the Kuwaiti Haitham Al Ghais, who succeeds the Nigerian Mohammed Barkindo, who died in early July.
Described as a “respected oil technocrat and a well-known figure in OPEC”, he assumed his duties as secretary-general on Monday, the organization announced in a statement.
After the drastic production cuts in spring 2020 (in the northern hemisphere), in response to the drop in demand caused by the coronavirus pandemic, producing countries have recovered production to pre-epidemic levels, at least on paper.
In normal times, production would have stabilized at this point, but the current price context and pressure from the United States suggest that there will be changes.
Biden’s controversial trip
In mid-July, US President Joe Biden traveled to Saudi Arabia despite his promises to turn the Gulf kingdom into a “pariah” country after the murder of journalist Jamal Khashoggi in 2018.
One of the reasons for this controversial visit was to convince Riyadh to continue turning on the oil tap to stabilize the market and curb rampant inflation.
Wednesday’s meeting could reveal whether Biden’s efforts have paid off.
“The US government seems to anticipate that there will be good news, but it is difficult to know if it is because of the compromises reached by Biden,” Craig Erlam, an analyst at Oanda, told Agence France Presse.
“It wouldn’t be surprising that the Saudis announce something that Biden might propose as a victory for his constituents,” says Stephen Innes of SPI Asset Management.
According to the Energy Aspects research center in London, OPEC+ could adjust its current agreements to continue increasing production volumes.
However, analysts predict possible drastic increases, because OPEC+ must also bear in mind that the interests of Russia, a key player in the alliance, are diametrically opposed to those of Washington.
“Saudi Arabia needs to walk a razor’s edge,” says Tamas Varga, an analyst at PVM Energy.
The alliance will have to allow the United States to save face and reassure Russia to ensure the stability of OPEC+.
Any decision taken on Wednesday will have to be unanimous, so a longer-than-usual meeting is expected.
“Any OPEC+ pact to increase production is likely to clash with market skepticism, given the alliance’s evident supply constraints,” says Exinity’s Han Tan.
The alliance does not usually meet the defined production quotas, and has already had problems returning to the pre-pandemic level.
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