Page 5 - FSUOGM Week 31 2022

FSUOGM COMMENTARY FSUOGM

and leading Arab countries continue to co-oper- Russia’s oil production has also recovered
ate on joint investment projects, many of which from a temporary fall following the start of the
are co-ordinated with the Russia Direct Invest- war in Ukraine in February and two months
ment Fund (RDIF), Russia’s sovereign wealth of self-sanctioning by oil traders, and reached
fund. 10.7mn bpd in June, slightly down from the
KSA, like many non-G7 countries, has been approximately 11mn bpd it was churning out at
taking advantage of the break in East-West rela- the start of this year. US production climbed to a
tions to play the middle ground as both Wash- record 12.1mn bpd in June.
ington and Moscow come knocking looking for MbS told Biden that KSA doesn’t have much
support in their mutual campaigns to isolate the more production capacity, but according to its
other. oil monopoly Saudi Aramco, the peak produc-
There are objective reasons for the small tion capacity is 12mn bpd, but it says that KSA
increase in production as well. The majority of will only be able to maintain this level of produc-
OPEC+ members cannot meet the existing quo- tion for a few weeks at most. The International
tas, reports The Bell, and prices are falling even Energy Agency (IEA) estimates the total poten-
without decisive action by exporters on fears of a tial for increased production in the Middle East
recession in the US and other major economies. at 2mn bpd and the August 3 decision will allow
A barrel of Brent cost $97 on August 3, down by KSA to expand output by no more than 30,000
$20 since the start of the year. bpd in real terms, with the UAE adding another
At the meeting of OPEC+ energy ministers 10,000 bpd, reports The Bell.
in Vienna, the alliance members, led by Russia Even that increase is in doubt, as KSA has
and KSA, approved a new increase in oil produc- long followed the policy of keeping some pro-
tion quotas of only 100,000 barrels per day (bpd). duction capacity in reserves to cope with unfore-
For comparison, in July-August, OPEC+ raised seen events.
output by 648,000 bpd every month. The cur- Biden tried to paper over the cracks with gifts.
rent increase is the lowest since 1986 in absolute The US approved a $3.05bn arms sale to KSA on
terms, and in percentage terms is the smallest in the same day as the OPEC meeting in Vienna,
the history of the cartel, writes Bloomberg. but to no effect, it seems.
This OPEC+ meeting is the first since the end Washington to a large extent has lost KSA to
of a production freeze deal approved in April Russia, where relations are increasingly warm.
2020 at the peak of the coronavirus (COVID- In the past the Middle East has been very reli-
19) pandemic. The OPEC+ members agreed to ant on US arms sales, but in the last years Rus-
remove 10mn bpd from the market in order to sia has made inroads and taken its own market
reverse the collapse in prices due to the collapse share of the arms business. Moreover, with the
in global demand due to lockdowns and then global superpowers of Russia, China and US on
restore production gradually over two years. a collision course, the non-aligned countries
The last two increases in July-August of this of the world are keen to stay out of the fight. In
year brought quotas back to pre-pandemic lev- practice that means keeping Washington at arms
els, but these are only the official quotas. The length while maintaining cordial relations with
actual production lags behind by 3mn bpd, The Moscow. Moreover, in this case both Riyadh and
Bell reports, citing the latest available production Moscow are interested in keeping prices high,
data. The main laggards are Nigeria, Angola and whereas Washington wants to see them come
Russia. down.
There are only two countries that can increase And the question of oil prices will only grow
output in line with the new official quotas: KSA in importance ahead of the EU deadline to cut
and the United Arab Emirates (UAE), accord- off Russian crude imports entirely by December
ing to Bloomberg. Their upside production 5 and refined products by February 5 next year
capacity is limited, but they still have some room as that part of the sanctions regime comes into
for increases. KSA’s quota for August is a total full force. The Central Bank of Russia (CBR) has
of 11mn bpd and actual volume of production warned that the fall in revenue from this could
in June was 10.65mn – a record by historical hit the Russian economy hard as well as the
standards. budget. ™

Week 31 05•August•2022 www. NEWSBASE .com P5