Why did OPEC+ maintain the global oil output?
The allies do not want to make the US upset

ANALYTICS  02 February 2023 - 16:00

Although some analysts earlier argued that the decision could be made on oil output, the recent meeting of the JMMC voted to maintain the oil output the same. On February 1, 2023, the OPEC+ Joint Ministerial Monitoring Committee, which tracks the alliance’s compliance with its output quota, convened digitally to discuss the oil output. Neither committee can outright decide on OPEC+ production policy, but the JMMC can recommend plans for the review of coalition ministers during the upcoming meeting in early April 2023.

According to the World Bank, the OPEC member countries and their allies with strong market influence account for about 60% of the global petroleum trade. The likely reason for the JMMC's decision not to shift the oil output is the US's "soft pressure" over the leading member countries, namely the group's de-facto leader Saudi Arabia.

On January 30, two days before the ministerial meeting, Saudi Arabia's Crown Prince Mohammed bin Salman held a phone call with Russian leader Vladimir Putin to discuss the preservation of price market stability. This should not come as a surprise, as the Saudi-Russia energy deal has grown significantly since 2018, which has been underpinned by their need to keep global oil prices up. In fact, there is a three-decade history of Saudi willingness to reach out to Russia whenever oil prices mandate it. The thing to understand here is that control of oil prices is crucial to the survival of states like Russia and Saudi Arabia.

The deepening engagement between Russia and the Gulf nations indeed creates uncertainties in their relations with the traditional ally – the US. For example, when Russia and Saudi Arabia reached an agreement to cut oil production in October 2022, the reaction from Washington was unambiguous, citing the decision as "disappointing." The decision meant that OPEC+ members' oil production would be cut by 2 million barrels, or around 2% of global output, by the end of 2022.

Hence, the rising diplomatic rifts with Washington pushed Riyadh and other members not to make any radical changes to oil output and invited unwanted attention from the West while the US watched the process cautiously. Simply put, the OPEC+ members, particularly Saudi Arabia, did not want to antagonize the US and European nations amid the Russo-Ukraine war and President Joe Biden’s warning that the October meeting decision could yield "consequences" for the energy cartel.

Analysts highlighted in the report that they expect solid global oil demand growth of 2.7 million barrels per day in 2023 to push the market back into deficit in the year's second half. However, the global economy still needs to be out of the woods after the COVID-19 pandemic and the impact of economic sanctions on Russia, and the OPEC+ group wants to avoid a recession.

When the sanctions were imposed on Russia’s crude oil exports, the shipments by sea dropped by 117,000 barrels per day (bpd) on a four-week average basis to 2.615 million bpd for the final four weeks of 2022. Those shipments are the lowest volumes Russia sent out to clients in 2022. Nonetheless, Russia continued to sell oil to China, the world’s largest importer, in continuation of the no-limit partnership established between them before the Ukraine War.

Given that China eased COVID-19 measures and lifted the travel ban, the oil and gas imports will likely rise as Beijing is still the world's biggest energy consumer. However, based on various reports, it is obvious that the United States is already taking a significant market share as the No. 1 oil producer since 2022, and neither Russia nor Saudi Arabia can replace it at this stage. Even the head of Saudi Arabia’s state-led oil company, Saudi Aramco, is concerned. Earlier this month, he issued a dire warning that prices could spike soon due to Aramco's “extremely low” capacity.

Seemingly, for now, the current oil output suits the Western countries well, though the pressure on the OPEC+ countries may follow during the upcoming meeting in April 2023. The US and its allies seek more isolation of Russia from the global energy market and interrupt any energy deal between Moscow and OPEC members, which is a crucial element for pushing the Kremlin to withdraw from Ukraine.

Caliber.Az