Chief Energy Director of the Russian Institute of Energy and Finance Alexei Gromov explained in an interview with Satellite News Agency why Russia and OPEC+ (OPEC+) cartel member states ignored Washington's efforts and agreed to carry out the largest oil cut since the pandemic and what that would mean for the global economy.
At the OPEC+ meeting held on Vienna on October 5, member states agreed to reduce crude oil production by 2 million barrels per day, or 5%, although they have been gradually increasing their output before. Alexey Gromov believes that there are two reasons why member states decide to reduce oil in the world market.
— In recent months, oil in the world market has shown a regular surplus. It is more about the contraction of demand than about the actions of OPEC+ member states. Various restrictions on the novel coronavirus (COVID-19) have also had a significant impact.
— Since April to May this year, the United States has released up to 1 million barrels of oil every day, actively consuming the national strategic oil reserves (SPR) to supplement the oil supply in the world market and strive to lower high oil prices. Therefore, in order to improve the predictability of the market, OPEC+ countries made a comprehensive decision to cut production by 2 million barrels per day.
Gromov explained that this value is because the OPEC+ country has not actually fulfilled its decision despite announcing the gradual resumption of mining at each cartel meeting before September and October.
"As of September this year, the cumulative amount of under-refined under the framework of OPEC+ member states has exceeded 1 million barrels of oil per day. In other words, if OPEC+ countries announce a reduction of 1 million barrels per day from November this year, nothing will happen in the market. OPEC+ will actually admit that it has not put more than 1 million barrels of oil into the market relative to its promises," he said.
According to Gromov, 2 million barrels per day is obviously possible for the OPEC+ countries, first of all, for the informal leader of the cartel Saudi Arabia and Russia. The production cut is in the interests of Moscow, and Moscow expects the EU oil embargo to take effect from December 5, 2022.
Another factor is the implementation of price caps on Russian oil. Such measures are included in the next (the eighth) EU sanctions on Russia, package, , although the "upper limit" itself is not specified. So, “We will see a decrease in Russian oil exports by the end of this year or early next year,” the experts said.
However, in his opinion, Russia has not lost anything as the initiator of the OPEC+ country's substantial reduction in oil production, as the country has had to limit production due to export restrictions, so in fact, Russia has gained a legitimate opportunity to stabilize oil in the world market under the OPEC+ agreement.
"In my opinion, this is a very elegant and beautiful solution for Russia," Gromov said.
He clarified that the actual production cuts will be less than 2 million barrels, but even so, it is enough to reverse the price trend of the global oil market, which is exactly what OPEC+ wants to achieve.
So, according to experts' estimates, the reduction in quota will eventually lead to everyone feeling comfortable with a price corridor of $90-95, rather than $86 not too long ago. But this situation will definitely not satisfy , the White House , and the White House needs to increase production in any case. After all, we are talking about a decision that is fully capable of affecting the outcome of the U.S. midterm election to be held in November. If prices start to rise again, Democrats may risk losing control of both houses of Congress. (Source: Russian Satellite News Agency)
