ANALYSIS - OPEC+ keeps hopes up

By Jose Chalhoub

*The author is a freelance political risk and oil analyst based in Caracas

CARACAS, Venezuela (AA) - After an unusually quick meeting on Sept. 1, OPEC+ decided to stick with its current production deal of adding an extra 400,000 barrels to markets at least until October as it continues to see markets tightening, a recovery in demand for oil for the remainder of 2021 of over 6 million barrels per day and full recovery by 2022, showing a continued sense of discipline so far in bringing stability to oil markets.

In this sense, once again, OPEC+ was being tested at a time when global oil markets are facing uncertainties over the full recovery of oil demand as the Delta and other variants of COVID-19 have critical spots with high levels of oil imports like Asia still under stress and with the global full resumption of international air travel yet to be reached despite the gradual recovery of demand, oil prices and drawdown of inventories shown in the first half of 2021, which in some ways have encountered some hurdles due to a spike in cases of the Delta variant in countries like China, South Korea, the US, and Japan.

The latest meeting came just weeks after the Biden administration called on the oil-producing alliance of countries of OPEC+ to further raise its already rising overall daily production in order to prevent a spike in oil prices and in light of recent high gasoline prices per gallon (currently between $2 and $4) in different states in the US, this being an issue critical in the short and medium-term full economic recovery of the country and more specifically for the iconic $1 trillion infrastructure plan of his administration, where this time it was seen that OPEC+ has responded to the global logic of the markets and not specifically to attention calls by Washington, as has been the case in the past.

Also, interestingly, this meeting of the members of this group came right in moments of important trade moves and shifts like the surprising ramping up of oil exports from Russia to the US (the latest data from the EIA showed imports from Russia stood around 850,000 barrels per day last week), despite an ongoing standoff and sanctions by Washington on Moscow over various political and energy issues such as NordStream2 backed by the Kremlin and the recent successive release of oil from strategic petroleum reserves of China, India, or the US, underscoring in different ways the importance of OPEC+ and the gradual pace of demand recovery of oil as well as the need of major oil importers of adequate price levels.

At the same time, this monthly meeting to monitor the evolution of oil markets by OPEC+ came alongside important geopolitical developments including right after the fall of Afghanistan to the Taliban, which is likely to have security and regional implications for many OPEC+ countries such as Russia and the Gulf states and the recent meetings between representatives of Iran and Saudi Arabia to defuse frictions and tensions between the two countries.

Following this same order of thought of geopolitical challenges for OPEC+, the current turmoil in Libya after the removal of state oil company NOC’s chairman Mustafa Sanalla by the government amid a budgetary crisis affecting the oil sector and political uncertainties ahead for the key North African country, along with the still unknown date for any potential resumption of nuclear talks between Iran and the US with sanctions still hovering over Iranian oil exports, altogether represent important geopolitical challenges to an organization that so far has proven to remain relevant in maintaining stability in oil markets and prices, and especially during these pandemic times. ​​​​​​​

In this sense, one of the key challenges for OPEC+ for the next years will be to procure all it can to keep a well-supplied oil market running parallel to a post-pandemic recovery period both for consumers and producers alike through maintaining internal discipline over production quotas, all together in order to prevent major price spikes which could be harmful to the global economy, which is still trying to find ways to recover from the substantial damage inflicted by the pandemic.