OPEC+ puts autonomy above all else
October production goals released by OPEC confirm that the wider alliance has significant strategic autonomy in dispensing US demands.
On September 5, the Organization of Petroleum Exporting Countries (OPEC) and its oil-producing allies gathered for the 32nd Ministerial Meeting via video link. The OPEC+ alliance, including Russia, decided to reduce output by 100,000 barrels per day for October as volatile price behaviors deter stronger cuts. “The Meeting noted that higher volatility and increased uncertainties require the continuous assessment of market conditions and a readiness to make immediate adjustments to production in different forms if needed,” read a post-meeting press release.
The minor supply cut had the immediate effect of elevating oil prices, although short of a drastic margin. That is because the 100,000 barrels per day reduction represents only a minor fraction of the extended alliance’s production goal of some 44 million barrels per day. But Monday’s decision demands a close look at the potential impacts of rising oil prices on OPEC, Russia, as well as non-OPEC oil-producing countries.
Begin with OPEC. A jump in prices will cater to some looming fears of weaker international economic growth, and is in line with the position taken earlier to opt for output cuts whenever OPEC feels oil prices are falling to new lows. Tehran, a founding member of OPEC, has also added to that sense of autonomy by indicating the global market’s need for more of its oil, willing to move the global supply chain away from the politics that undermines it.
The rise in oil prices is also unlikely to prove counterproductive for the alliance. That is because such marginal adjustments have proven largely risk-averse when applied during key testing spells, such as the COVID-19 surge. Several OPEC member states are also keen to observe the amount of support they get from a slow economic recovery worldwide, which has been so far underwhelming. Thanks to the West which has made sure of it. That makes it imperative for OPEC+ to eliminate hopes of wildly unrealistic supply cuts, and instead, move in lockstep with Russia – an ally seen as a “highly influential player in the world energy map” at a time of significant energy market risks.
Monday’s meeting also signals OPEC’s resolve to go for more adjustments in production ahead of October 5, allowing Russia more weight in talks. That is because tensions surrounding a potential price cap on Russian oil directly concern Moscow, weakening speculation that Russia and OPEC are somehow opposed to each other on present and future supply adjustments. Some of that unity reflects in the alliance’s own consensus over a future meeting being called “anytime to address market developments, if necessary.” G7 attempts to push for a price cap could easily trigger that ministerial gathering, prompting oil-producing allies to factor the cap as one of their emerging concerns. To that end, potential adjustments in oil production and prices would likely benefit Russian interests in the near-term, and complicate Western efforts to send shockwaves through the global energy market.
For non-OPEC oil-producing countries, Monday’s price supporting measure is likely to generate more confidence on key fronts. From an economic growth viewpoint, the decision by OPEC+ to reduce output that amounts to just 0.1% of global demand, makes it clear that non-OPEC oil producers won’t be pressured into supplying any less than they want to. Moreover, OPEC+ appears to give a firm response to Western calls for drastic production increases because its move is the opposite. OPEC’s conservatism suggests it is not the alliance’s head-ache to drive down future oil prices when some geopolitical risks causing price volatility stem from the Western front. That includes a staggering recovery in global growth, G7 efforts to put a price cap on Russian oil, a compounding European energy crisis, and the sustenance of sanctions on key oil-producing states.
It helps to recall that OPEC+ agreed to step up oil production by the same meager margin of 100,000 barrels per day in September, largely as a response to US requests for doing more. But October production goals released by OPEC confirm that the wider alliance has significant strategic autonomy in dispensing US demands after a month. By choosing to revert to production levels of August, neither OPEC nor its allies risk becoming an outlier on global oil supply volumes.
This approach gives OPEC+ enough latitude to monitor wild fluctuations in prices which loom on the minds of key oil-producing nations. It also enables the alliance to do what Western countries have so far failed to: take genuine stock of increased uncertainties in the market by confining decision-making clout to those that determine it. In its own telling, the alliance has “the commitment, the flexibility, and the means within the existing mechanisms .. to deal with these challenges and provide guidance to the market.”
Judging by recent history, this cluster of influential oil-producing nations and their allies has succeeded in putting its definition into practice.