The main oil exporters of OPEC + meet this Wednesday to discuss their production strategy after US President Joe Biden tried to convince Saudi Arabia to continue turning on the tap in the face of runaway inflation.
The cartel of oil countries, led by Saudi Arabia and Russia, has so far resisted US pressure to increase production after Russia’s invasion of Ukraine triggered a spike in oil prices. After cutting production in 2020 in response to falling prices during the covid-19 pandemic, OPEC+ began modestly increasing production last year and has renewed this policy every month.
Production is supposed to have returned to pre-Covid-19 levels, but in reality members of the group of 23 countries struggled to meet their respective quotas.
According to Craig Erlam, an analyst at trading platform OANDA, the OPEC+ meeting will show whether “President Biden has any influence on the cartel.” In July, the US president made a controversial trip to Saudi Arabia to convince the kingdom to increase crude production in order to stabilize the market and curb inflation. Biden met with Saudi Crown Prince Mohammed bin Salman despite his promise to treat the kingdom as a “pariah” after the 2018 murder of journalist Jamal Khashoggi. After meeting with Saudi officials, Biden said he was doing everything he could “to increase supply from the United States.”
“Saudi Arabia and its allies will have to decide whether to heed Joe Biden’s request and increase production or stand in solidarity with Russia by standing still,” said Tamas Varga, an analyst at oil broker PVM.
OPEC+ is “unlikely to announce a significant output increase, given mounting recession fears” and the drop in oil prices since early June, says Stephen Innes, managing partner at SPI Asset Management.
– More cautious? –
After hitting close to $140 a barrel in early March, crude oil prices continued to slide this week on weak economic data from China, the world’s largest oil importer.
Both Brent and WTI are now trading below $100 a barrel.
“The notable drop in prices since yesterday (Monday) could make OPEC+ more cautious,” Commerzbank said in a note.
The German bank said the news that Libyan output had returned to normal levels for the first time in almost four months could also serve as an argument against further output growth. OPEC+ began adding about 400,000 barrels a day to the market last year, renewing the policy every month until June, when it increased output by almost 650,000 barrels a day.
According to analysts, the group has canceled the cuts of 9.7 million barrels per day agreed for 2020, although only in theory.