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Oil: OPEC+ opens its floodgates further in the face of soaring prices

Oil: OPEC+ opens its floodgates further in the face of soaring prices
Written by madishthestylebar

Saudi Energy Minister Prince Abdulaziz bin Salman at a conference in Bahrain on 16 May 2022 (AFP/Mazen Mahdi)

After months of waiting despite the surge in prices caused by the war in Ukraine, the members of OPEC+ decided on Thursday to move up a gear and boost their oil production, thus responding to urgent calls from Westerners.

Representatives of the thirteen members of the Organization of the Petroleum Exporting Countries (OPEC) and their ten partners (OPEC+) agreed that “July production would be adjusted upwards by 648,000 barrels per day”, compared to the 432,000 barrels set previous months, the alliance said in a statement after another whirlwind meeting.

Monday’s announcement by the 27 countries of the European Union of an embargo on the bulk of Russian oil has heightened fears of shortages and visibly changed the situation for the cartel, which underlines “the importance of stable and balanced markets “.

This is a turning point for OPEC + which had been limited since the spring of 2021 to modest increases in its quotas, to return to its levels before the Covid-19 pandemic.

The group had so far never deviated from its line, even after the invasion of Ukraine by Russia which accentuated the tensions on the market.

– Growing isolation –

Chart showing destination countries for Russian oil exports, according to the latest available data from the World Bank (2020) (AFP/)

Chart showing destination countries for Russian oil exports, according to the latest available data from the World Bank (2020) (AFP/)

This announcement delighted investors: crude oil prices rose by almost 1%, the two crude oil benchmarks fluctuating around 116 dollars a barrel.

An article in the Wall Street Journal had mentioned a possible sidelining of Russia, affected by Western sanctions, but OPEC + remained united.

The decided increase is distributed proportionally between each of the members, with identical quotas for Moscow and Ryad, the two pillars of the alliance.

OPEC+, which pumps around half of the world’s oil, was formed in 2016 to adjust supply and regulate barrel prices.

Some, however, question the sustainability of the agreement in the current circumstances.

“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 closeā€¯ 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.

– “Key role” –

Russian Foreign Minister Sergei Lavrov and his Saudi counterpart Faisal bin Farhan, in Riyadh on June 1, 2022, for a meeting of the Gulf Cooperation Council (AFP/Fayez Nureldine)

Russian Foreign Minister Sergei Lavrov and his Saudi counterpart Faisal bin Farhan, in Riyadh on June 1, 2022, for a meeting of the Gulf Cooperation Council (AFP/Fayez Nureldine)

Saudi Arabia has long remained deaf to appeals.

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”.

It is true that the Gulf economies derive juicy profits from a barrel well over 100 dollars: Saudi Arabia thus recorded in the first quarter its strongest growth in ten years.

Despite these more ambitious quotas, OPEC+ will not be able to replace all the volumes lost from Russia due to the difficulties of some of its members in reaching their objectives, analysts warn.

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