The OPEC+ factor and oil prices
by Yuriy Zinin on 03 May 2023 0 Comment

“The OPEC+ decision has purely economic motives,” “Oil prices and voluntary production cuts,” “When OPEC is used as a boogeyman.” These and similar headlines are used by the Middle Eastern media commenting on the agreement of the OPEC+ countries at the beginning of April this year to voluntarily cut oil production by 1.66 million BPD by the end of 2023.


Local authors from Algeria to the Sultanate of Oman try to give a picture of the real situation in the “black gold” markets, explain the motives of this cartel decision and polemic with the Western analysts. The latter, in particular, argue that the time for the April move is not right and accuse the Omanis of artificial overpricing, which, in turn, spurs inflation. In doing so, the Western media manipulates the fear of cartel action.


According to most Middle Eastern observers, the OPEC+ demarche is not political, but economic in order to equalize supply with demand and compensate for the fall in real income due to inflation, which is exported to all parts of the world.


OPEC had nothing to do with turning on the printing press to produce over $8 trillion in new appropriations, which has led to a spike in inflation in a number of countries. The decision to foment Europe’s biggest conflict, namely the Russian-Ukrainian one, was also not prepared in the corridors of OPEC, the Saudi newspaper states. It wasn’t OPEC that had a hand in the global food crisis due to high fertilizer prices and Black Sea port closures. The Western banking sector did not consult OPEC when investing most customer deposits in cryptocurrencies and bonds, negatively impacted by the Federal Reserve’s interest rate hike from 0.25% in February 2022 to 5% in March 2023.


A number of experts from the Sultanate of Oman agreed that the cartel’s move would keep prices stable after being affected by the recent US banking crisis. It will bring them to a fair level for producers and consumers. The oil market would avoid a supply vs. demand crisis in the event of an economic slowdown and possible recession. They agreed that the OPEC+ decision was taken as a precautionary measure to avoid a repeat of the 2008 crisis, when OPEC cut production too late in an attempt to stop the collapse.


Producing countries have acted proactively, not waiting for another OPEC+ meeting, and to avoid losing their quotas in the oil markets, echoes Omani oil expert Khaled Boukhelifa of Algeria. The course of cutting is taken at the right moment, after oil prices fell to $70 a barrel and then rose again to $80, showing increased volatility under the influence of a number of factors. Thus, there are serious economic challenges, including those associated with extremely sensitive oil markets, which requires protection of the interests of producing countries.


For international competition is fierce, and delaying an active response threatens losses for these countries. At the same time, the alliance relies on the research of marketing institutions of its member countries, on the analytics of the Secretariat of the organization in Vienna and specialized international organizations.


The OPEC+’s step demonstrates solidarity of the cartel countries and consistency of their positions after their national interests have become more interdependent. And this despite the fact that some media are peddling the thesis that there are non-existent differences between the members of the alliance in order to undermine their cohesion.  It has come to define not only the ways of the world energy markets, but also many of the ways of trade and economic trends, says an Emirati specialist.


“Today, the alliance is stronger than ever, shaking off external pressures and strengthening the spirit of solidarity among its members, especially its Arab members after the last Arab summit in Algiers in November 2022,” concludes an Algerian newspaper.


The increasing role of the OPEC in maintaining market stability is undeniable, says prominent Arab oil expert Dr. Namat Al-Soof. A few years ago, analysts argued that OPEC was losing its ability to control the market because of the emergence of shale oil in the US.  But OPEC+ came along and the Kingdom established cooperation with Russia. The organization became responsible for more of the world’s oil supply than OPEC had previously done alone.


As the group’s latest adjustment shows, it is fully prepared and willing to support the stability of energy security. According to the expert, the times of explosive growth of shale oil production in the US are over. It will continue to grow as long as the price is reasonable, but at a much slower pace than before the collapse in 2020 and at a lower rate than expected a few months ago.


At the same time, analysts draw attention to the firm position of Saudi Arabia, the largest oil producer within OPEC+. Riyadh is interested in oil prices in the range of $90 per barrel to finance an ambitious program of domestic economic reforms called “Vision 2030.” Its goal is to diversify the Kingdom’s economy. Thus, in previous months, contracts worth $8.5 billion were signed for the construction of a hydrogen plant near the city of Neom, $8.8 billion was allocated for tourist facilities on the Red Sea, etc.


It is a fact that OPEC now has more influence in the international energy market than Western countries believe, the Gulf Center for Strategic Studies concludes. And this reality will determine the dynamics of strengthening their geopolitical ties with this cartel during the current year.


Yury Zinin, senior researcher at the Center for Middle Eastern and African Studies of the Moscow State Institute of International Relations (University) of the Ministry of Foreign Affairs, exclusively for the online journal “New Eastern Outlook.” Courtesy 

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