That puts US President Joe Biden in a precarious position ahead of next month’s midterm elections. But it also indicated that Saudi Arabia is increasingly willing to resume its role as an oil producer and emphasize its new ties with Russia.
Rising oil prices following Russia’s invasion of Ukraine, as well as limited capacity, need OPEC+ to unite and push its members to adjust collective production targets.
But mergers alone cannot protect the cartel’s role as a global price regulator. This project is based on the Kingdom’s desire to resume its traditional role as an additional market producer, which it has been reluctant to do in recent years. Although the OPEC+ decision threatens to put more strain on the US-Saudi relationship, production targets are mostly empty. The new agreement increases the cartel’s production in November to about 42 million barrels per day, but it is producing about 39 million barrels per day – 4.5 million below the government’s October target – while 15 n ‘to make 23 members of the group are struggling to meet. their limits. The gap between target output and actual output has widened in recent months. Many countries – with the exception of Saudi Arabia and the United Arab Emirates – have no spare capacity, due to years of underinvestment. This is especially true in Nigeria and Angola. Furthermore, the impact of Western sanctions on Russian exports was only partially mitigated by shifting exports from Europe to Asia. As a result, OPEC + will probably reduce the production of one million barrels per day in November, half of the group proposed in Vienna this month. The member countries that are working hard to continue the production goals, are unlikely to reduce production at all, bringing the goal closer to the capacity of the union. This month’s decision requires only the eight OPEC+ countries to reduce oil production, while Saudi Arabia will bear the brunt by reducing production by 500,000 barrels per day.
Similarly, when Opec+ reduced production by almost 10 million barrels per day during the pandemic to compensate for the drop in demand, Saudi Arabia voluntarily reduced production by one million barrels. again every day during the illness. But the Saudis may have learned from their past mistakes. In the 1980s and 1990s, the Kingdom was the undisputed leader of a cartel of intrigue and infighting. But during the global financial crisis of 2008, the country refused to work as a flexible producer by changing its own production to keep prices high. With the oligopolistic power of OPEC eroding following the American energy revolution, the Saudis fear that American producers will take advantage of higher oil prices and increase their market share in Kingdom spending. As a result, the price of oil dropped from almost $110 per barrel to $29 between 2014 and early 2016, making the situation worse for all OPEC members. As the public finances of traditional oil producers worsened, Saudi Arabia was forced into an uneasy alliance with Russia, a long-time ally of its nemesis, Iran. The expanded cartel hurt the profits of US shale producers, but did not drive them out of business. The Russians and the Saudis struggled to create a united front and agree on production plans, leading to an unprecedented price war that pushed the benchmark West Texas Intermediate into negative territory and water. 2020. In fact, it is only pure self-interest that drives Saudi Arabia’s willingness to act as a producer. According to legend, the recent production cut is to change the market story from the desired doom to nothing and set the price down to US $ 90 per barrel. But pushing oil prices higher would also undermine US efforts to finance Russian oil, which the Saudis see as dangerous. After all, if the Western countries apply the power they need to bring down the price of Russian oil, they can do the same for Middle Eastern oil. Therefore, Saudi Arabia may want to strengthen its role as a long-term stopgap producer. The green revolution will likely lead to a structural reduction in oil demand that will require the kind of rapid production change that only the Kingdom can plan and implement.