OPEC +, at the conclave in Vienna, is ready to cut soon

OPEC +, at the conclave in Vienna, is ready to cut soon

(JO CLAMAR/AFP)

OPEC +, returning to Vienna on Wednesday for the first time since March 2020, wants to mark the occasion: on the menu is a significant reduction in oil production quotas to support prices, at the risk of offending the White House.

Thirteen members of the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and ten of their partners, led by Russia, met at the cartel’s headquarters around 14:00 (12:00 GMT), after months of video conferencing.

The face-to-face meeting was decided at the last minute, enough to fuel rumors of drastic cuts amid recession fears.

Such a move would run counter to Western efforts to curb soaring energy costs that are weighing on global growth.

“A significant reduction in crude supply will push prices above $100 a barrel,” Oanda’s Craig Earlom warned in a note. “As consumers breathed a sigh of relief,” pump prices have plummeted since this summer.

In recent weeks, two global benchmarks for crude oil have lost ground, hovering around $90 per barrel, well below the high recorded in March at the start of the war in Ukraine (almost $140).

The White House is on guard

A photo shows plumes of smoke from an oil refinery in Maysan province, southern Iraq, on May 29, 2022.
Smoke is seen from an oil refinery in southern Iraq’s Maisan province on May 29, 2022. (Asaad NIAZI/AFP) #

Figures being circulated suggest a reduction of one to two million barrels per day since November.

Either way, it “will not be well received by the White House ahead of next month’s midterm elections,” warns Tamas Varga of PV Energy.

US President Joe Biden has been fighting for months to stop rising prices that are eroding household purchasing power, even going so far as to travel to Riyadh in July on a highly controversial visit.

At the White House, we tried to put this meeting into perspective, a high-ranking official emphasized that OPEC+ meets “every month like clockwork.”

The day before, press secretary Karin Jean-Pierre refused any premature comments, reminding that Washington “continues to take measures to protect American consumers (…) and ensure sufficient supply to meet demands.”

“Technical Organization”

Asked on arrival about Washington’s reaction, Emirati Energy Minister Suhail bin Mohammed Al Mazroui responded by saying it was a “technical organization” that did not interfere in political matters.

Saudi Prince Abdel Aziz bin Salman refused to make any substantive statements, preferring to talk about the weather, and the Russian Deputy Prime Minister, who oversees energy issues, Alexander Novak, did not speak to the press.

A sharp drop in oil volumes would satisfy Moscow, “and therefore can be perceived as a further escalation of geopolitical tensions,” comments Ipek Ozkardeskaya, an analyst at Swissquote.

Created in 1960 to regulate crude oil production and prices by setting quotas, OPEC expanded its activities to include Russia and other partners in 2006 to form OPEC+.

In a historic gesture, alliance members decided to cut nearly 10 million jobs in spring 2020 amid a drop in demand linked to the Covid-19 pandemic. A recipe that worked.

This time, they want to “get a head start on fighting a possible recession with proactive measures,” says Seb’s Bjarne Schildrop. “Which would allow them to avoid possible stockpiling and, consequently, low oil prices.”

Already in September, the group slightly lowered its goal (by 100,000 barrels) and declared that it was ready to do more. If the rumors are confirmed, it will be the biggest cut since the shock of the pandemic.

After a jump earlier in the week, prices were steady around 1pm GMT on Wednesday at $92.14 a barrel for North Sea Brent and $86.73 a barrel for WTI, its US counterpart.

burs-emb-anb/pta

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