As global demand continues to rise and the 23 members of OPEC + (the historic Organization of the Petroleum Exporting Countries plus its allies, led by Russia) are not able to agree after three meetings on how much and until when they will increase oil production, their price continues to rise . Yesterday, the Brent rate, the benchmark for Europe, exceeded $ 77 a barrel, its most expensive price since October 2018, and Texas touched $ 77 for the first time since November 2014.
The Secretary General of the Organization of the Petroleum Exporting Countries (OPEC), Mohammed Barkindo, released a statement on Monday afternoon stating that the OPEC + alliance meeting had been “canceled” and that “The date of the next meeting will be decided in due course”.
Nevertheless, there is a proposal on the table: increase oil production by 400,000 barrels a day each month between August and December, that is, a total of 2 million barrels a day on the market until the end of the year
But there is an important disagreement between the UAE and the rest of the alliance on a technical question, its reference production volume. This limit, set in October 2018, is equivalent to 3.17 million barrels per day in the case of Abu Dhabi. It therefore does not reflect the country’s total production capacity, which reached over 3.8 million in April 2020, before the cartel ordered drastic cuts in oil extraction.
All against one
“It’s the whole group against one country,” Saudi Minister Abdelaziz bin Salman told Bloomberg TV, calling for “a bit of rationality and a bit of compromise” ahead of Monday’s meeting.
This divergence derailed the cartel’s first round of meetings on Thursday, and again on Friday, between members of the group, in which disputes usually come from the two heavyweights, Russia and Saudi Arabia.
However, the proposed strategy is the same that the cartel launched since May: gradually reopen the oil tap after having closed it at the beginning of the pandemic.
And it is having some success because the two reference barrels, the Brent and Texas, they’re at $ 77, which represents a 51% rise since the beginning of this year.
Crude prices registered a slight shock when the postponement was announced, since one of the options considered if an agreement is not reached is to maintain a production level identical to that of July in August, which would cause the market to still tense up. more, with a risk of overheating of the economy.
In April 2020, when the first wave of Covid-19 hit oil demand hard, the OPEC + alliance committed to voluntarily withdraw 9.7 million barrels from the market newspapers and to gradually reintroduce them until April 2022.
But this period now seems short considering the consequences of the health crisis. This month the alliance continues to leave 5.8 million barrels out of the market newspapers. Hence the proposal to stagger until December 2022, an option that Abu Dhabi does not like.
OPEC + is also facing a complex situation, with a real recovery in demand but which remains fragile, as well as the probable medium-term return of Iranian exports and high prices that cause discontent among large importers such as India.
“The lack of agreement on production increases in August and beyond leaves the market even more deficient than before,” Neil Wilson told ‘markets.com’.
«The inability of OPEC + to reach an agreement it will only increase the uncertainty of the oil market »said Warren Patterson of ING Group NV.
Fuels on the rise
One of the most immediate consequences of rising oil prices is the rise in fuel prices. In both cases, it began to become apparent in November 2020, when the first vaccines appeared.
In Spain, the average price of 95 octane gasoline is 1,384 euros per liter, its highest figure in seven years. That of diesel is at 1,247 euros. These prices have risen 17% since the beginning of the year, Therefore, filling a vehicle’s 50-liter tank is an expense of 10 euros more than in January.