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MEOG OPINION MEOG
This OPEC+ meeting is the first since the end of a production freeze deal approved in April 2020 at the peak of the coronavirus (COVID- 19) pandemic.
The OPEC+ members agreed to remove 10mn bpd from the market in order to reverse the collapse in prices due to the collapse in global demand due to lockdowns and then restore pro- duction gradually over two years.
The last two increases in July-August of this year brought quotas back to pre-pandemic lev- els, but these are only the official quotas. The actual production lags behind by 3mn bpd, The Bell reports, citing the latest available production data. The main laggards are Nigeria, Angola and Russia.
There are only two countries that can increase output in line with the new official quotas: KSA and the UAE, according to Bloomberg. Their upside production capacity is limited, but they still have some room for increases. KSA’s quota for August is a total of 11mn bpd and actual volume of production in June was 10.65mn – a record by historical standards.
Russia’s oil production has also recovered from a temporary fall following the start of the war in Ukraine in February and two months of self-sanctioning by oil traders, and reached 10.7mn bpd in June, slightly down from the approximately 11mn bpd it was churning out at the start of this year. US production climbed to a record 12.1mn bpd in June.
MbS told Biden that KSA doesn’t have much more production capacity, but according to its oil monopoly Saudi Aramco, the peak produc- tion capacity is 12mn bpd, but it says that KSA will only be able to maintain this level of produc- tion for a few weeks at most. The International
Energy Agency (IEA) estimates the total poten- tial for increased production in the Middle East at 2mn bpd and the August 3 decision will allow KSA to expand output by no more than 30,000 bpd in real terms, with the UAE adding another 10,000 bpd, reports The Bell.
Even that increase is in doubt, as KSA has long followed the policy of keeping some pro- duction capacity in reserves to cope with unfore- seen events.
Biden tried to paper over the cracks with gifts. The US approved a $3.05bn arms sale to KSA on the same day as the OPEC meeting in Vienna, but to no effect, it seems.
Washington to a large extent has lost KSA to Russia, where relations are increasingly warm. In the past the Middle East has been very reliant on US arms sales, but in the last years Russia has made inroads and taken its own market share of the arms business.
Moreover, with the global superpowers of Russia, China and US on a collision course, the non-aligned countries of the world are keen to stay out of the fight. In practice that means keep- ing Washington at arm’s length while maintain- ing cordial relations with Moscow. Moreover, in this case both Riyadh and Moscow are interested in keeping prices high, whereas Washington wants to see them come down.
And the question of oil prices will only grow in importance ahead of the EU deadline to cut off Russian crude imports entirely by December 5 and refined products by February 5 next year as that part of the sanctions regime comes into full force. The Central Bank of Russia (CBR) has warned that the fall in revenue from this could hit the Russian economy hard as well as the budget.™
Week 32 10•August•2022 w w w . N E W S B A S E . c o m P7