Saudi Arabia, Russia may find their oil pricing power limited

    WORLD  05 October 2022 - 13:45

    Reduced global demand may offset any supply cut by OPEC and its allies.

    Even if Saudi Arabia and other leading oil-exporting countries cut their production targets this week, spurning U.S. efforts to keep supplies flowing, the move may barely register in global oil prices, The New York Times reports.

    An output cut by Saudi Arabia and its allies would reinforce the growing perception that Crown Prince Mohammed bin Salman of Saudi Arabia and President Vladimir V. Putin of Russia are working closely together to manage oil markets. That is not what President Biden had in mind when he visited Saudi Arabia in July, shared a fist bump with Prince Mohammed and called for more production.

    But the cut being considered — up to a million barrels a day by OPEC Plus — may amount to little more than symbolism, given countervailing forces in the global oil market.

    Global inventories and spare capacity are considered to be well below the levels that would assure stability. And, by early next year, European sanctions over Russia’s invasion of Ukraine are intended to tighten, in a bid to curb Russian oil sales, and the United States is planning to stop drawing down its Strategic Petroleum Reserve.

    Given those circumstances, a cutback by OPEC Plus — the confederation of the Organization of the Petroleum Exporting Countries and several other producers, including Russia — would ordinarily put a higher price on oil. This time, however, the decrease in supply would coincide with falling demand in China and Europe.

    After the Russian invasion of Ukraine in February, oil prices soared to over $130 a barrel, but they have since dropped to well below $90. That is mainly because predictions of a sharp decline in Russian exports have so far proven to be overblown, China has continued to lock down once-bustling cities to stop the spread of the coronavirus and the United States and its allies have released more than a million barrels a day from their reserves.

    “With crude oil prices off over 30 percent from their peak earlier this year, OPEC Plus is now worried about a recession reducing demand,” said Andrew Lipow, president of Lipow Oil Associates, a consulting firm in Houston. And higher oil prices could increase the likelihood of such an economic downturn.

    Experts question just how much OPEC Plus will actually cut. Only two of the 23 countries in the group — Saudi Arabia and the United Arab Emirates — are able to meet their current quotas.

    Energy experts say whatever OPEC Plus announces it will probably translate into a supply reduction of roughly 500,000 barrels a day, or about 0.5 percent of global supplies.

    “Not that big a deal,” said Rusty Braziel, executive chairman of RBN Energy, another Houston consulting firm. But, he added, “an OPEC Plus cut will definitely impact the market, just by the signal it sends that OPEC Plus stands ready to cut production to keep the price of oil from falling.”

    Gyrating prices in oil markets have become familiar in recent years.

    During the 2008-9 financial crisis, prices dropped to $35 a barrel from $145 in only five months. In 2014-15, as economic growth slowed, oil dropped more than 50 percent in nine months, to $45 a barrel. Prices climbed again until the Covid-19 pandemic hit, when demand collapsed. In a matter of hours, they briefly crashed to below zero from $18, as producers were forced to pay buyers to take oil they had no room to store.

    With their economies at stake, Saudi Arabia and its allies have aimed to stabilize the market as the world slowly recovers from the pandemic. After cutting nearly 10 million barrels a day of production during the pandemic, OPEC Plus gradually restored output until last month, when it announced a small decrease.

    “OPEC Plus wants $100 oil,” said Scott Sheffield, the chief executive of Pioneer Natural Resources, a major oil company in Texas. Mr. Sheffield predicted that oil would stabilize at $90 to $100 a barrel and stay there for as long as a slowing economy kept demand down. “There will be a small increase at the pump,” he said.

    The average price of a gallon of regular gasoline has declined to $3.80 from just over $5 on June 14, according to the AAA auto club, although it has climbed a bit in recent days.

    Over most of this year, the Biden administration, with limited success, urged Persian Gulf countries to pump more. While Mr. Biden has pushed to lower prices at the pump, the Saudis have been more concerned that prices are going too low and that global spare capacity is insufficient at a time of global instability.

    Russia wants the highest prices possible to compensate for reduced exports to Europe.

    Those prices are under pressure not only by a slowing economy but also by increased oil production in the United States, Guyana, Brazil and other countries. Kuwait and other OPEC Plus countries have been investing to expand production capacity.

    Unable to prod the Saudis and its allies to produce more, the Biden administration has released about 160 million barrels of crude from the strategic reserve since March. It recently extended those releases by another month.

    Lawrence J. Goldstein, the director of special projects at the Energy Policy Research Foundation, a research group in Washington, said the prospective OPEC Plus action “could interestingly trigger a move by the U.S. to speed up the release” from the strategic reserve, which was created in large part as a buffer against OPEC’s ability to squeeze world supplies.

    Such a tit for tat can go both ways, of course.

    “OPEC Plus could promise further cuts,” said Robert McNally, a former energy adviser to President George W. Bush, adding that the oil market “faces unusually large unknowns on the supply and demand sides.”


Read also

Georgia expresses support for Ukraine in conflict with Russia

28 November 2022 - 15:50

Four killed in Somalia hotel siege - security agency

28 November 2022 - 14:44

 MEP offers to place Patriot missile systems in Ukraine instead of Poland

28 November 2022 - 15:00

India, Australia launch joint military drills

28 November 2022 - 15:10

Iraq plans to start expanding oil export capacity from 2023

28 November 2022 - 14:03

Polish envoy: NATO military stockpile being depleted as it helps Ukraine

28 November 2022 - 13:40
Latest news

    Azerbaijani president abolishes Naxchivan customs committee

    28 November 2022 - 15:55

    Georgia expresses support for Ukraine in conflict with Russia

    28 November 2022 - 15:50

    Azerbaijan publishes plan of functions to be held in 2023 marking "Year of Heydar Aliyev"

    28 November 2022 - 15:43

    Putin: Russia reorients exports, imports on new markets

    28 November 2022 - 15:34

    Vardanyan rushes to his Moscow patrons to get instructions

    ...and confesses his own failure

    28 November 2022 - 15:34

    France-based ethnic Azerbaijani rights activists visit Aghdam


    28 November 2022 - 15:25

    Iran denieis role in attack on tanker off Oman coast

    28 November 2022 - 15:17

    India, Australia launch joint military drills

    28 November 2022 - 15:10

    Expert: Russia's nuclear strike on Ukraine remains possible

    Vitaly Kulik hosted by Caliber.Az

    28 November 2022 - 15:06

     MEP offers to place Patriot missile systems in Ukraine instead of Poland

    28 November 2022 - 15:00

    Türkiye detains one of terrorist organisation leaders

    28 November 2022 - 14:52

    Four killed in Somalia hotel siege - security agency

    28 November 2022 - 14:44

    Ukraine reveals number of children missing since war outbreak

    28 November 2022 - 14:35

    Azerbaijan defuses 260 mines, munitions in liberated lands

    28 November 2022 - 14:26

    Erdogan: Those who support terrorists also responsible for attacks on civilians

    28 November 2022 - 14:18

    Azerbaijan, Türkiye to strengthen information, experience exchange in customs

    28 November 2022 - 14:10

    Iraq plans to start expanding oil export capacity from 2023

    28 November 2022 - 14:03

    Yerevan arrests woman for high treason

    Another spy scandal in Armenia

    28 November 2022 - 13:56

    EU rep: President Aliyev committed to EU settlement format of Armenian-Azerbaijani ties


    28 November 2022 - 13:48

    Polish envoy: NATO military stockpile being depleted as it helps Ukraine

    28 November 2022 - 13:40

    Tatars of Azerbaijan: history and modernity

    For Rustam Minnikhanov's visit to Baku

    28 November 2022 - 13:35

    Ukraine updates Russia's military casualties

    28 November 2022 - 13:34

     Young girls stage flashmob in Baku in support of ethnic Azerbaijani protesters in Iran


    28 November 2022 - 13:27

    Turkish Armed Forces continue killing terrorists in Syria

    28 November 2022 - 13:20

    Iran summons German ambassador over UN Human Rights Council resolution

    28 November 2022 - 13:13

    Azerbaijan congratulates Albania on National Day


    28 November 2022 - 13:09

    Armenian MFA: "Yerevan and Delhi have done much work for defence cooperation"

    28 November 2022 - 13:04

    Russia's biggest tech company wants to cut ties with country

    28 November 2022 - 12:54

    Azerbaijan records significant trade turnover increases with top partners

    28 November 2022 - 12:46

    Upcoming winter may trigger internal disputes regarding energy embargo within EU

    Grabbing more Russian diesel

    28 November 2022 - 12:42

    Boeing offers Ukraine high-precision munitions for missile systems

    28 November 2022 - 12:37

    Japan to build constellation of 50 military satellites

    28 November 2022 - 12:31

    Paris picking up a fight with Ankara and London

    Risking defeat

    28 November 2022 - 12:28

    UK intelligence: Russian army shells Kherson as it retreats

    28 November 2022 - 12:23

    Türkiye continues to modernize C-130 military plane fleet


    28 November 2022 - 12:17

    Iranian bank fires manager for serving an unveiled woman

    28 November 2022 - 12:10

    Triumphant Azerbaijani youth athletes return home from trampoline championship

    28 November 2022 - 12:02

    President Aliyev receives US State Department's senior advisor for Caucasus negotiations


    28 November 2022 - 12:00

    Azerbaijani, Belgian businessmen discuss broader cooperation


    28 November 2022 - 11:53

    Riots in Brussels after Morocco beat Belgium at World Cup

    28 November 2022 - 11:46

    Moscow accuses Europe of "reviving neo-Nazism" in world

    28 November 2022 - 11:38

    Azerbaijan develops news strategy with focus on digitalisation of finances

    Anaysis by Caliber.Az

    28 November 2022 - 11:34

    Erdogan notes possibility of normalising Türkiye-Syria relations

    28 November 2022 - 11:30

    Iran supreme leader's niece urges world to cut ties with Tehran


    28 November 2022 - 11:22

    Israel to send generators, medicines, medical equipment to Ukraine

    28 November 2022 - 11:15

All news