OPEC+ countries are preparing to adopt a new strategy after the covid-19 pandemic at their meeting on Wednesday, with all eyes on how they will react to rising crude prices.
The representatives of the 13 members of the Organization of Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and its 10 partners (OPEC+), led by Russia, are at a crossroads.
They have to decide on the continuation of the current agreement, under the leadership of the Kuwaiti Haitham Al Ghais, who succeeds the Nigerian Mohammed Barkindo, who died in early July.
Described as a “respected oil technocrat and well-known OPEC figure,” he took up his duties as secretary-general on Monday, the organization said in a statement.
After the drastic cuts in production in the spring of 2020, in response to the drop in demand caused by the coronavirus pandemic, the producing countries recovered production to pre-epidemic levels, at least on paper.
In normal times, production would have stabilized at that point, but the current price context and pressure from the United States suggest that there will be changes.
In mid-July, US President Joe Biden traveled to Saudi Arabia, despite his promises to turn the Gulf kingdom into a “pariah” country following the murder of journalist Jamal Khashoggi in 2018.
One of the reasons for this controversial visit was to convince Riyadh to continue opening the oil tap to stabilize the market and curb rampant inflation.
Wednesday’s meeting could reveal whether Biden’s efforts paid off.
“The United States administration seems to anticipate that there will be good news, but it is difficult to know if it is because of the commitments obtained by Biden,” explains Craig Erlam, an analyst at Oanda, to AFP.
“It wouldn’t be a surprise if the Saudis announce something that Biden can propose as a victory to his voters,” says Stephen Innes of SPI Asset Management.
According to the London research center Energy Aspects, OPEC+ could adjust its current agreements to continue increasing production volumes.
However, analysts warn of possible drastic increases.
Because OPEC+ must also keep in mind that the interests of Russia, a key player in the alliance, are diametrically opposed to those of Washington.
“Saudi Arabia has to walk on a knife edge,” says Tamas Varga, an analyst at PVM Energy.
The alliance will have to allow the United States to save face and placate Russia to ensure OPEC+ stability.
Any decision made on Wednesday will have to be unanimous, so a longer-than-normal meeting is expected.
This summit, by videoconference, will begin at 1:00 p.m. GMT.
“Any OPEC+ deal to increase output is likely to meet market skepticism, given the alliance’s already apparent supply constraints,” says Exinity’s Han Tan.
The alliance routinely fails to meet production quotas already allocated, and has struggled to return to pre-pandemic levels.
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