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Oil: OPEC + in conclave after the banishment of Russia

published on Thursday, June 02, 2022 at 12:03 p.m.

OPEC+ countries meet on Thursday to adjust their oil production, with everyone thinking about the EU’s announcement of an embargo on Russian crude, which puts Moscow in an awkward position within the alliance. .

Analysts were still unanimously counting two days ago on a status quo, despite calls from Westerners to open the floodgates further to curb the surge in prices which accelerated after the decision of the Twenty-Seven.

And all of them insist on the will of the 23-member cartel, led de facto by Ryad, to spare Russia and preserve the cohesion of the group.

“Until now, the market assumed” that OPEC + would remain on the same line, with a marginal increase in production volume of 432,000 barrels per day in July, “Russia included”, summarizes Carsten Fritsch, analyst for Commerzbank.

This strategy, which began in the spring of 2021, aims to gradually return to pre-Covid-19 pandemic levels, after the drastic cuts decided in the face of the collapse in demand linked to health restrictions and confinements around the world.

But a Wall Street Journal article published on Tuesday cast doubt. According to the American daily, members of the Organization of Petroleum Producing Countries (OPEC) are studying the possibility of excluding Russia from the agreement fixing production quotas.

Such a scenario would allow Saudi Arabia and the United Arab Emirates to tap into their spare capacity to partially compensate for the shortfall, and thus calm the market.

– Growing isolation –

This possibility, also mentioned by an article in the Financial Times on Thursday, seemed to give hope to investors: crude oil prices fell shortly before 10:00 GMT by more than 2%, the American WTI evolving around 112 dollars and the Brent of the North Sea at $113 a barrel.

The debates of the thirteen members of OPEC, led by Saudi Arabia, and their ten partners led by Russia will begin with technical discussions at 12:00 GMT (2:00 p.m. in Vienna, the seat of the cartel), before the plenary meeting by videoconference.

Speculation is rife, with experts like PMV Energy’s Stephen Brennock worrying that a temporary ban on Russia would ‘effectively end the deal’ formed in 2016 to regulate the market .

“Russia has turned into a pariah”, asserts Bjarne Schieldrop, an analyst at Seb, who sees “in the apparent intensification of the diplomatic shuttle between the United States and Saudi Arabia” the sign “that a change is maybe close” as sanctions pile up on the Kremlin.

After similar decisions by the United States and the United Kingdom, EU leaders reached an agreement on Monday that should cut their imports of Russian oil by some 90% by the end of the year.

Hungary, however, blocked the sanctions package on Wednesday, calling for the removal of the head of the Russian Orthodox Church, Patriarch Kirill, from the EU blacklist.

– Signals of immobility –

For the time being, “OPEC+ will undoubtedly stick to its plans and will not work miracles at this meeting”, judges Ipek Ozkardeskaya, of Swissquote Bank, betting instead on developments “by the end of September”. .

Saudi Foreign Minister Prince Faisal bin Farhan reaffirmed at the recent World Economic Forum in Davos that “the kingdom has done what it can”, according to the business press.

“The situation is more complex than simply adding barrels to the market”, he insisted, while the members of the G7 pointed to the “key role” of OPEC + in the face of “tightening of international markets”.

If the Gulf economies remain deaf to calls, it is also because they are reaping juicy profits from a barrel well above 100 dollars: Saudi Arabia thus recorded in the first quarter its strongest growth in ten years.

In this context, it is not sure that “reluctance towards a wide opening of the taps” will quickly dissipate, argues Susannah Streeter, at Hargreaves Lansdown.

And even if it wanted to, OPEC + could not replace all the lost volumes of Russia due to the difficulties of some of its members to reach their quotas, recalls the analyst.

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