Friday, May 20

Oil: OPEC + facing record prices, against a backdrop of geopolitical crises

OPEC+ cartel meets on Wednesday to discuss further oil production hikeTATYANA MAKEYEVA

The OPEC + cartel is meeting on Wednesday to discuss a new increase in oil production, when prices are at their highest in seven years, boosted by cascading geopolitical crises.

As almost every beginning of the month since the outbreak of the Covid-19 pandemic, the thirteen members of the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and their ten allies headed by Russia meet by videoconference to make any adjustments.

Many analysts expect for the month of March a further increase in the total production volume of 400,000 barrels per day.

This would thus be a continuation of the strategy of cautious reopening of the floodgates, initiated in May 2021 by OPEC+ in a context of recovery, after drastic cuts to overcome the shock of the pandemic.

“That said, we don’t completely rule out a larger upside, given high oil prices and recent OPEC+ undersupply,” Capital Economics said.

The price of a barrel of Brent from the North Sea, the benchmark contract in Europe, thus exceeded the symbolic bar of 90 dollars in January, its highest since October 2014. The barrel of West Texas Intermediate (WTI) reached also multi-year summits.

Forgotten the fears aroused at the end of 2021 by the Omicron variant, the market is now focusing on the strong geopolitical tensions which involve the behemoths of the production and export of black gold – Russia, Saudi Arabia and the United Arab Emirates. . And pose threats to supply.

– From Ukraine to Yemen –

Tensions are at their highest between Moscow and the West over Ukraine, near which Russia has massed tens of thousands of troops and heavy weaponry.

“The Russian invasion of Ukraine would lead to very tough sanctions”, which would drive up prices even further, Bjarne Schieldrop, an analyst at Seb, told AFP.

Among the measures envisaged, the reduction of purchases of gas and oil from Moscow, which represent respectively 43% and 20% of the supply of the European Union.

In the Middle East, regional hostilities linked to the war in Yemen have also taken a step up.

The Houthis, insurgents supported by Iran, carried out their first deadly attack on Emirati soil in mid-January and fired missiles against Saudi Arabia.

The attack, condemned abroad, was followed by retaliatory raids.

Besides these geopolitical elements, analysts blame the slowness of OPEC+ to restore its pre-pandemic production because of its cautious strategy. But also because some producing countries are struggling to restart extraction volumes due to infrastructure and investment problems.

“OPEC+’s underperformance and inaction supported higher oil prices as the group missed its stated production targets of hundreds of thousands of barrels,” analyst Louise Dickson said. for Rystad Energy.

And “the Saudis have made it clear that they will not fly to the aid of other members, by exceeding their quota to compensate for the lower volumes” of their partners, adds Bjarne Schieldrop.

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