OPEC agrees to release some pressure, while oil prices are still at the top. But not enough to permanently lower prices. The cartel of crude exporting countries, allied for five years to ten other states led by Russia, will increase its production by 650,000 barrels per day in July, and again by the same amount in August.
This is significantly more than the increase of 430,000 per month that was provided for in their agreement so far. The announcement came Thursday afternoon, after a short meeting by videoconference of the 23 allied countries which together account for more than half of the world’s oil supply.
The power of Saudi Arabia
Saudi Arabia, the de facto leader of OPEC, thus managed the feat of satisfying both the United States and Russia. A challenge in the current context, which once again demonstrates the power of the Wahhabi kingdom on the oil markets.
Washington, the G7 and all the major crude consumer countries have been calling on OPEC to open the floodgates for several months, in order to limit the surge in black gold prices. that threatens the global economy . This Thursday’s decision goes in their direction. The White House immediately “welcomed” the announcement in a statement, emphasizing “Saudi Arabia’s role” in obtaining consensus from the 23 producing countries.
“Riyadh is gaining diplomatic ground with Washington, which is making a lot of efforts on its side to improve its relations with Riyadh”, deciphers Ann-Louise Hittle, analyst at Wood Mackenzie.
Embargo on Russia
At first sight, the decision seems negative for Moscow. With the European embargo and American on oil, Russia is forced to reduce its production. It currently pumps some 10 million barrels a day, one million less than it is allowed to produce under its deal with OPEC.
It will not be able to benefit from the increase in volumes scheduled for the coming months, which will mainly benefit the three countries which still have unused capacity: Saudi Arabia, United Arab Emirates and Iraq.
An inevitable deadline
But what Russia loses in volume, it can hope to recover partly in prices. “The agreement announced Thursday is not as important as it looks, decrypts Ehsan Khoman, analyst at MUFG bank in Abu Dhabi. It only brings forward a few months an inevitable deadline, the moment when OPEC and its allies will reach the maximum of what they can produce”.
This expert estimates the unused production capacities of the alliance at some 3 million barrels per day. However, Russian production could fall by as much by this summer, the International Energy Agency predicts. In addition to Russia, some OPEC countries are failing to produce as much as they could. This is particularly the case for Nigeria and Angola.
At the same time, demand is picking up again: resumption of travel after the health crisis, easing of confinements in China start of the “driving season” (holidays generating high use of means of transport) in the United States, etc.
Brent at $141 this summer?
One of the solutions would be an increase in the production of American shale oil. “It is progressing, but not enough to have a significant impact on global market balances before next year,” continues Ehsan Khoman.
Supply at the cleat, demand on the rise… All the ingredients are in place for prices to remain high. The barrel of Brent rose by more than 1% on Thursday shortly after the announcement of the cartel, to 117 dollars. MUFG predicts a barrel of Brent at 141 dollars on average this summer, 20% more expensive than current prices which have already jumped 50% since the start of the year.
A crucial alliance for Moscow
Enough to limit Russia’s losses, even if the country has been forced to practice big discounts to sell its crude since the start of the war.
“The agreement announced on Thursday is not necessarily good for Russia but it is acceptable, summarizes Ann-Louise Hittle. It makes it possible to remain within the framework set by the alliance. But maintaining the alliance with Saudi Arabia is crucial for Moscow. It is oil, but also diplomatic and military. »