Saudi-Russia Led OPEC+ To Cut Oil Production, Pump Up Prices

Saudi Arabia and Russia-led OPEC group is meeting today with the aim of decreasing oil production by 500,000 barrels per day to more than a million.

Meeting for the first time in person since March 2020, OPEC’s decision to cut production will push up prices when the world is reeling under an inflation crisis.

Further, the cut is also seen as a defiance of the United States by Saudi Arabia, merely a few months after the visit of President Joe Biden.

Equivalent to one per cent of the global oil supplies, the cut will have ramifications for the world economy, and is the largest since the pandemic.

As per reports, Saudi Arabia wants to keep some production capacity in reserve and is also factoring in the western sanctions that will hit Russia by the end of the year.

For Russia, the cut presents an opportunity to arrest the dwindling revenues, and the current buyers (mainly India and China) picking up crude at a huge discount.

Saudi Arabia and Russia, as the world’s second and third largest oil production nations, would want to insure their revenues, given the anticipated fall in demand in the upcoming few quarters.

For the Russians, an increase in prices is indispensable, given the push from G7 to implement a price cap for crude from Russia.

For the US, this could raise oil prices at a time when the midterms are around the corner and Biden is desperately looking to curb inflation, one of the biggest thorns in his election campaign.

WTI Crude, after touching the $120 mark in the early weeks of the invasion, has come down to around $85 whereas Brent Crude is trading around $90 after crossing $110 in March.

As per some observers, the oil cuts are also an indication of Saudi Arabia’s growing resentment against the White House, given the former’s security concerns in the Middle East.

Further, the release from the emergency stockpiles by the United States, and the worry of a price cap on other oil-producing nations in the future are adding to the desperation.

For July 2022, the annual per cent change in the consumer price index for energy was 36 per cent in Germany, 28 per cent in Canada, 28.65 per cent in France, 42.96 per cent in Italy, and 57.7 per cent in the UK. For Europe, the dependency on Russian oil is huge.

At 258,000 barrels per day, Russia makes up 21 per cent of Turkey’s oil imports. For Portugal, it is 31,000 barrels per day (bpd) at 10 per cent. For the Czech Republic, it is 52,000 bpd at 21 per cent. For Hungary, 92,000 bpd at 43 per cent. For Austria, 8000 bpd at 3 per cent.

For Poland, 509,000 bpd at 58 per cent. For Estonia, 13,000 bpd at 34 per cent. For Ireland, 11,000 bpd at 6 per cent. For Latvia, 9,000 bpd at 24 per cent. For Lithuania, 185,000 bpd at 83 per cent. For Finland, 246,000 bpd at 80 per cent.

For Norway, at 45,000 bpd, Russia makes up for 25 per cent of the oil imports. For Spain, it is 183,000 bpd at 11 per cent. For Italy, 204,000 bpd at 13 per cent. For Belgium, 278,000 bpd at 23 per cent. For Germany, 835,000 bpd at 30 per cent. For Slovakia, 109,000 bpd at 74 per cent.

For Greece, 200,000 bpd at 29 per cent. For Netherlands, 748,000 bpd at 23 per cent. For Sweden, 43,000 bpd at 9 per cent. For the French, 233,000 bpd at 13 per cent.

For Denmark, 28,000 bpd at 15 per cent, and finally, for the United Kingdom, the closest ally of the Americans in Europe, at 170,000 bpd, Russian crude imports have a share of 11 per cent.

Further, there are rumours that Saudi Arabia may also go for additional cuts, beyond the 0.5-1 million bpd threshold.

In times when the central banks, globally, are torn between taming inflation by increasing interest rates and ensuring demand while curbing the supply side issues, the OPEC+ cuts only add to the turbulence.

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