FRANKFURT, Germany (AP) — Major oil-producing nations, led by Saudi Arabia and Russia, are debating whether to cut supply to the global economy again as the OPEC+ alliance struggles to support the drop in oil prices which has been a boon to American pilots and has helped to dampen inflation around the world.
The 23-member group is meeting at OPEC headquarters in Vienna on Sunday after sending mixed signals about possible moves. Saudi Arabia, which dominates among oil cartel members, has warned speculators they could get burned betting on lower prices. Russia, the leader of non-OPEC allies, said no production changes were expected.
The decision comes amid uncertainty over when the slow-growing global economy will regain its thirst for fuel for travel and industry, and as producers rely on oil profits to bolster their coffers.
Oil prices fell even after OPEC+ cut 2 million barrels a day in October, angering US President Joe Biden by threatening to hike gasoline prices a month before the mid-elections. mandate. Then several Saudi-led OPEC members made a surprise cut of 1.16 million barrels per day in April.
International benchmark Brent crude climbed as high as $87 a barrel but gave up gains after the cut and has been loafing below $75 a barrel in recent days. US crude fell below the $70 mark.
Those lower prices helped U.S. drivers at the start of the summer travel season, with pump prices averaging $3.55, down $1.02 from a year ago, according to the AAA automobile club. Falling energy prices have also contributed to inflation in the 20 European countries that use the euro at their lowest level since before Russia invaded Ukraine.
The United States recently replenished its strategic oil reserve – after Biden announced the largest national reserve release in US history last year – in an indicator that US officials may be less concerned about cuts of OPEC than in previous months.
The Saudis, on the other hand, need high and sustained oil revenues to finance ambitious development projects aimed at diversifying the country’s economy. The International Monetary Fund estimates the kingdom needs $80.90 a barrel to meet its planned spending commitments, which include a $500 billion futuristic desert city project called Neom.
This may have been one of the motivations behind Energy Minister Abdulaziz bin Salman’s warning to speculators that they will “hustle” if they keep betting on lower oil prices.
Bin Salman’s pointed comment is not necessarily a prelude to a cut at Sunday’s meeting, said James Swanston, Middle East and North Africa economist at Capital Economics.
“We expect OPEC+ to stick to current production quotas,” he said, adding that “there have been signs that the government may be prepared to live with oil prices. lower oil prices and budget deficits”.
On top of that, Russia may find current prices to its liking as its oil finds eager new customers in India, China and Turkey. Western sanctions over the war in Ukraine have forced Russian oil to sell at discounted prices of around $53 to $57 a barrel.
At these prices, shipments from Moscow avoid triggering the $60 price cap imposed by the major Group of Seven democracies in an attempt to limit oil profits flowing into Russia’s war chest. The price cap allows the world’s third-largest oil producer to continue supplying non-Western customers to avoid a global shortage that would drive up prices for everyone.
Insurers and shipping companies largely based in Western countries are barred from manipulating Russian oil if its price is above the cap. Russia has found ways to circumvent the limits through “dark fleet” tankers, which tamper with transponders indicating their location or transfer oil from one vessel to another to disguise its origin.
An “OPEC+ production cut could push the price of Russian oil above the G7 price cap of $60 a barrel, making it difficult to transport and therefore sell the oil,” wrote the report. commodities analyst Carsten Fritsch of Commerzbank in a research note. Russia seems to be doing good business at the current price level.”
The International Energy Agency said in its April oil market report that Russia has not fully followed through on its announcement to extend a voluntary cut of 500,000 barrels per day until the end of the year.
In fact, total exports of oil and refined products such as diesel fuel from Russia rose in April to a post-invasion high of 8.3 million barrels per day. And this despite an almost total boycott by the European Union, once Russia’s biggest customer.
Analysts say OPEC+ faces conflicting pressures. A drop could support prices or drive them higher, with demand expected to pick up later this year.
“The impact of rising oil prices on the global economy will weigh heavily on ministers’ minds,” said Jorge Leon, senior vice president of oil market research at Rystad Energy. “High oil prices would fuel inflation in the West just as central banks are beginning to see inflation gradually recede.”
“This could prompt central banks to continue raising interest rates, a move that is detrimental to the global economy and oil demand,” Leon wrote in a research note.
AP reporter Fatima Hussein contributed from Washington.