Image Source: DMarket Force
The world’s largest oil producers will conduct an important meeting on Wednesday to determine oil prices and much oil they might add to the market starting in September.
It comes shortly after US President Joe Biden visited Saudi Arabia in an effort to personally persuade the nation to pump additional barrels and help lower skyrocketing costs.
Since February, crude has often traded at more than $100 a barrel, increasing the cost of living in many nations.
The White House is hoping that the Opec’s 13 core members will opt to increase oil supplies. That, however, is not a given.
Opec was established in 1960 as a cartel with the purpose of controlling the price and supply of oil globally.
President Biden stated that he anticipates supplies to rise after meeting with Saudi Crown Prince Mohammed Bin Salman, who is the cartel’s largest producer. However, Saudi officials have also emphasized that any decision to boost supplies will be made in conjunction with Opec+.
Opec+, a larger group of 23 oil-exporting nations that includes Russia, meets each month in Vienna to decide how much crude oil to sell on the global market.
Opec+ started a series of cuts in April 2020 that persisted as demand decreased during the coronavirus pandemic. It has been gradually reestablishing this lost supply since 2021.
At its most recent meeting, Opec+ voted to slightly boost its production of barrels for the month of August. However, it might not be so simple to simply turn the faucets on full. On paper, several cartel members, including Angola, Nigeria, and Malaysia, are already having difficulty achieving their current monthly supply targets.
Due to western sanctions, Russian shipments have decreased at the same time. Moscow has increased its supplies to clients in Asia, like China and India.
The only two significant participants with some extra capacity are the linchpin, Saudi Arabia, and its neighbor, the United Arab Emirates. However, Saudi Arabia’s production target for August is 11 million barrels per day, which energy analysts believe is already at a very high level and leaves little possibility for further increases.
Uncertainty regarding the demand for energy in the upcoming months, however, may have had a greater impact on the couple’s decision.
The crisis in Ukraine, rising interest rates, and the impending recession in many western nations might all significantly reduce demand. According to experts, these elements can make the organization cautious and reticent about dramatically increasing their output.
Russia, behind the United States and Saudi Arabia, was the third-largest oil producer in the world prior to the invasion of Ukraine. It supplies 8–10% of the world’s oil.
According to market analysts, President Vladimir Putin wants to maintain high oil prices in order to continue funding the conflict in the Ukraine and fend off the effects of devastating western economic sanctions.
Saudi Arabia prioritizes the Opec+ group’s unity and would refrain from taking any actions that would compromise it.
What will happen to oil prices now?
Even if it increases less quickly than it did this year, Opec itself predicts that world oil demand will increase in 2023. According to its analysts, this will be influenced in part by developments in the fight against the coronavirus in China.
Despite mounting concerns over inflation in several nations and slowing economic growth, estimates from the International Energy Agency and the US Energy Information Administration indicate that oil demand will continue to rise sharply.
Given capacity restrictions and the lack of investment in downstream and refining, oil producers may find themselves having to pump oil at a faster rate than they have in the previous five years in order to balance supply and demand.
There is a lot of market volatility, but few observers anticipate a lasting slide below $100 a barrel, according to Ben Cahill, a senior scholar at the Centre for Strategic and International Studies in Washington.
This year, American gasoline prices have already surpassed a 13-year high.
As part of its strategy to add 180 million barrels to the market over a six-month period ending at the end of October, the US has been releasing roughly one million barrels per day from its Strategic Petroleum Reserve (SPR) since April.
