Caught in a pickle: OPEC+, Saudi Arabia, the oil price war

By Al Mayadeen English
Source: Agencies
1 Aug 2022 12:04

It seems improbable that a case where the member states of the alliance could return to pre-Covid levels, due to the runaway prices and pressure from Washington.

Minister of Energy Prince Abdulaziz bin Salman Al-Saud and Russian Energy Minister Alexander Novak in Vienna (CNBC)

The alliance of oil exporters, OPEC+, is due to establish a new strategy at their meeting on Wednesday, with an intense focus on their responses regarding soaring crude prices.

Directed by Saudi Arabia, the 13 core members of OPEC, in addition to the 10 states in OPEC+, spearheaded by Russia, find themselves between a rock and a hard place.

Following the severe output cuts agreed to in spring 2020 as a consequence of the backlash of the plunge in demand caused by the coronavirus pandemic, it still seems improbable that a case where the member states of the alliance could return to pre-Covid levels, even if on paper, due to the runaway prices and pressure from Washington.

Biden's visit to the Kingdom; was it a show and no tell?

US President Joe Biden departed Washington and traveled to Saudi Arabia in mid-July despite his promise to make the country an outcast in light of the 2018 murder of journalist Jamal Khashoggi.

The rather controversial journey to the Kingdom was partially to persuade Riyadh to further alleviate the production taps to maintain the market’s stability and avoid the destitute rise of inflation, however, the fruit of the meeting will demonstrate if the journey was compelling or just for show.

"The US administration appears to be anticipating some good news but it's hard to know whether that's based on assurances during Biden's trip or not," stated Craig Erlam, analyst at Oanda, to AFP.

Stephen Innes of SPI Asset Management declared, "It wouldn't be a surprise to see the Saudis announce something that Biden could tout as a win to voters at home….”

Reaching pre-COVID levels is a shot in the dark

The London-based research institute, Energy Aspects, stated that OPEC+ could resort to adjusting its current agreement to maintain the increase of crude production capacities, with analysts cautioning otherwise. The alliance has already continuously failed to reach the production rates allotted and has constantly struggled to go back to pre-pandemic volumes.

OPEC+ will have to consider the fact that Russia’s interests – those of a key player in the alliance – fall paradoxical to those of Washington.

"Saudi Arabia has to walk a fine line," warned Tamas Varga, analyst at PVM Energy.

The task entails permitting the US to save face while simultaneously pacifying Moscow to assure the balance of the alliance. Any decision reached on Wednesday’s meeting will have to be unanimous, which may prolong the duration of the meeting, which is anticipated to occur at approximately 1300 GMT on Wednesday (or 3 pm at the Vienna HQ) through videoconference.

"Any new OPEC+ deal aimed at further ramping up supplies is likely to be met with market skepticism, considering the supply constraints already evident within the alliance," says Han Tan, chief market analyst at Exinity in the UAE.