If nothing goes wrong and the vaccination schedule runs smoothly, advanced economies will rebound strongly in the second half of the year and boost global oil demand. That is why crude exporting countries are betting, which this Thursday have agreed to increase by 1.14 million the number of barrels they put on the international market every day. Despite the increase in supply, crude brent, the European benchmark, was up 3% after the announcement.
The increase is slightly less than what a country like Spain consumes each day and will be gradual: 350,000 more barrels per day in May and June, and another 441,000 in July. By then, the Organization of the Petroleum Exporting Countries (OPEC) and its foreign partners led by Russia hope that both the United States and Europe – along with China the two quintessential consumers of crude oil – the economic rebound will have taken root and that the snips applied in recent months on the supply to contain the price drain are less necessary than in the most acute phase of the coronavirus crisis.
The reopening of the oil tap represents a change of script with respect to the latest movements of the cartel of oil countries. In March, the expanded OPEC or OPEC +, on which 60% of world crude production depends, chose to leave supply intact except in two club countries, Russia – which has long advocated raising production limits – and Kazakhstan, which were allowed to loosen slightly on restrictions. “What we have done today is, I think, a very conservative measure,” Saudi Energy Minister Abdulaziz Bin Salmán stressed at a press conference held shortly after Thursday’s announcement.
Despite the gradual reopening of the demand tap, the current level of pumping continues almost seven million barrels below what it would place on the market without the self-imposed obstacles to avoid a collapse in prices like the one experienced in April of last year , when the brent went below $ 20 a barrel and the texas The US traded negative. Today, the price of crude is back at pre-pandemic levels, a recovery that would have been impossible without the determined action of exporters. In May 2020, when OPEC + agreed to the largest supply cut in history, the reduction in pumping was close to 10 million barrels per day to offset the – also unprecedented – slump in fuel consumption caused by strict lockdowns.
All in all, the increase in world oil supply will be greater than that agreed within the cartel. Following the group’s announcement, the world’s largest exporter and undisputed OPEC leader, Saudi Arabia, has announced that it will once again inject into the market the million barrels per day that in February it decided to involuntarily stop pumping and incorporated the already drastic cuts to the poster. It will do so, too, in three phases: May, June and July. By then, the global supply will add another 2.14 million barrels of crude oil every day – almost as much as what a country the size and wealth of Germany consumes -: the 1.14 million that the group as a whole will reintroduce and the million that Riyadh unilaterally withdrew.
Washington’s influence on the decision
The resolution of OPEC + and the Kingdom of the Desert comes shortly after the new US Administration, led by Democrat Joe Biden, called on the Saudi authorities to keep oil at a not too high price level to avoid the recovery in check. economical. “We have reaffirmed the importance of international cooperation to ensure that consumers have affordable and reliable energy sources,” the new Energy Secretary Jennifer Granholm said on Twitter after a phone call with her Saudi counterpart.
Since 2015, the US has been the world’s leading oil producer, but most of its production is for domestic consumption and its impact on the international price of this raw material is less. Any move from Saudi Arabia, on the other hand, has a direct and immediate impact on the markets.
The call between those responsible for US and Saudi energy policy was released just coinciding with a change in tone in the talks between the OPEC + delegates, which until a few days ago pointed to the maintenance of the cuts as the most likely scenario. But already in the 24 hours prior to the start of the meeting on Thursday, the representatives of the countries in the cartel began to drop that an increase was beginning to take hold.
The influence of the United States on Saudi Arabia, its great traditional ally in the Middle East, is far from being a novelty. In recent times, Biden’s predecessor, Republican Donald Trump, has already used the tactic of persuasion on several occasions to try to make Riyadh stick to his objectives: when the price of crude rose, he asked the Kingdom of the Desert to production increased; when prices plummeted and jeopardized the financial viability of US producers of frackingLike last spring, he was urging a drastic cut back on pumping. Until now, the Biden Administration had avoided this approach, seeking a greater distance and raising the tone against the numerous outrages of the Saudi authorities. Until today.
Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.