OPEC+ grapples with mixed blessing of rising oil prices

OPEC+ oil price rise AFP
The Esso Oil refinery in Fawley, is pictured from Hamble, near Southampton, southern England on October 4, 2021. (Photo AFP)
LONDON — OPEC and its key allies will meet on Monday to decide whether to ramp up oil production in a bid to calm overheated global energy prices.اضافة اعلان

The market landscape has changed little since the previous meeting on September 1 of the oil exporters’ cartel and its allies, together known as OPEC+, with demand continuing to outstrip global crude supply.

Oil prices jumped above $80 last week for the first time in almost three years, a two-sided coin for the club, led by Saudi Arabia and Russia

The 23 countries in the group are expected to start their video conference meeting at 1300 GMT (3:00 pm local time) at the headquarters of the Organization of Petroleum Exporting Countries in Vienna.

While higher prices benefit producers in the form of increased exports and revenues, there are medium-term drawbacks if rising prices stifle the fragile post-pandemic economic recovery.

The trend could also entice new competitors into the market, making the exploration of new fields more profitable or even encouraging a trend towards renewables.

OPEC has been sticking to an increase in production of 400,000 barrels per day (bpd), agreed in July, but could nonetheless be tempted to open the taps further starting from November.

US President Joe Biden’s administration urged such an approach in August, when National Security Advisor Jake Sullivan said the cartel was not doing “enough” to boost oil production. 

Analyst Bjarne Schieldrop of Seb said on Monday that, given current conditions, “OPEC+ can thus no longer claim that they are working to stabilize the global oil market”. 

“The current chaos in the global coal and natural gas markets cannot be ignored, either. Holding back oil supply now is adding pain to injury to global consumers,” he said. 

Willing and able

In a study published last week, Morgan Stanley analysts noted the possibility of “demand destruction” if oil prices creep over $80 a barrel. 

Iraq’s oil minister has told the country’s state news agency the group is working towards keeping prices at around $70.

However, in the current market, Goldman Sachs sees Brent crude oil soaring towards $90 within months. 

Prices were stable in the hours leading up to Monday’s meeting, with the benchmark Brent contract trading at just under $80 a barrel, roughly the same level as at closing on Friday.

To calm overheating prices, OPEC+ countries could opt to increase supply volumes, but there are questions over their willingness — not to mention ability — to do this.

Nigeria, Angola and Libya “continue to face their perennial infrastructure, investment, and security challenges”, according to Croft.
Tamas Varga, an analyst at PVM Oil Associates, said: “Delayed maintenance works and lack of investment, partly due to the health crisis and partly because of the transition from fossil fuel to renewable energy, are to blame for these failures”.

OPEC Secretary General Mohammed Barkindo gave mixed signals while speaking on the sidelines of a technical meeting on Wednesday. 

He said OPEC’s strategies “have helped eliminate the market’s stock overhang”, but at the same time recognized the “need for incremental increases to address demand”.

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