A new move has been made in something of a chess match between Saudi Arabia and the Biden administration in the international crude oil markets during the June OPEC conference in Vienna.
Although the organization itself announced no further production cuts would be made, it did declare that existing curbs, which increased by over a million and a half barrels per day in April, would remain in place until at least the end of 2024 instead of the end of 2023.
But the bombshell out of the event was a decision by OPEC chair country Saudi Arabia to slash production by an additional million barrels per day on a voluntary basis, CNBC reported.
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The June 3-4 meeting was peculiar for two reasons. One is that OPEC decided to hold it in person at the Vienna headquarters instead of online despite the next meeting being just a few weeks away in July.
The second is that a trio of major media outlets, namely The Wall Street Journal, Bloomberg, and Reuters were excluded from attending the event just days before it transpired.
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CNBC reported that the Saudi supply cut would be temporary, coming into effect on a preliminary one month basis in July “which can be extended.”
According to the OPEC website, consortium countries hold more than 80 percent of the world’s oil reserves, with Venezuela and Saudi Arabia holding the most at 24.4 and 21.5 percent respectively.
The Saudi Minister of Energy, Prince Abdulaziz bin Salman, was said to have stated that the production cut was a “Saudi lollipop” and not an idle threat.
A Reuters article followed up on the “lollipop” comment, quoting the Prince as stating in a press conference, “We wanted to ice the cake. We always want to add suspense. We don’t want people to try to predict what we do… This market needs stabilisation.”
In late May, Abdulaziz had warned speculators who are net short on crude oil, “I keep advising that they will be ouching” after the commodity printed its worst losing month in 2023 and its 12th losing month in the last 13 since WTI crude printed a multi-year high of $130 in March of 2022.
Abdulaziz may very well have been referring to the Joe Biden administration itself.
When Forbes covered the most recent round of unexpected OPEC production cuts in April, which sent WTI screaming from $75 to $83 over the course of a few days, it noted that Washington had failed to refill the Strategic Petroleum Reserve, which the administration has systematically drained to historic lows, even when the prices hit the $60s in March.
“Presumably the president was looking for even cheaper oil,” Forbes said, adding, “Biden has repeatedly called on OPEC to open wide their spigots in order to keep prices low and Vladimir Putin’s finances squeezed.”
The Saudi production cut announcement sent WTI crude futures almost 4 percent higher on June 4 market open, briefly tagging the $75 mark. However, gains have been short lived as the contract traded back to its June 1 close within the span of just five hours.
The June Vienna meeting was described by CNBC as “contentious talks that dragged well into the night on Saturday.”
The Wall Street Journal cited unnamed “delegates” to the conference as telling them, “Saudi Arabia was pushing some members to cut output but faced stiff resistance, especially from some African producers.”
WSJ, which is one of the three outlets punted from the Vienna meeting, repeatedly referred to OPEC+ as a “cartel” that included “Russia-led allies”
“The latest available data indicates that Russia continues to pump large volumes of oil into the market, which has helped maximize income for its beleaguered economy but added to a global surplus,” the Journal stated based on information from delegates it says it spoke with.
The outlet quoted Prince Abdulaziz, who spoke during a televised press conference, as adding, “It is really a great day for us because the quality of the agreement is unprecedented and I would have to say the quality of cooperation is unprecedented.”
On May 3, Bloomberg reported that a recent IMF report calculated that the Saudis require crude to trade at $80 per barrel in order for the country’s finances to break even.
Bloomberg said its own economic calculations show this figure is “perhaps closer to $100 to meet all spending commitments and ensure the stability of the social contract between the government and the citizens.”
Reporting by Al Jazeera on the production cut stated they “would not be real” because OPEC had “lowered the targets for Russia, Nigeria and Angola to bring them into line with their actual current production levels.”
But according to the outlet, OPEC sources show that Saudi Arabia produces more than twice as many barrels per day than second place Iraq, a difference of 10.9 million versus 4.5 million, as of August 2022, long before the recent production jockeying.
The new cuts bring Saudi production down to 9 million barrels daily.
A second June 4 article by Reuters quoted an unnamed White House official as stating in response to the Saudi announcement, “We are focused on prices for American consumers, not barrels, and prices have come down significantly since last year.”
Yet as consumers found out in late 2022 when record gasoline and diesel inflation brought pain at the pumps even as the price of crude plummeted, the correlation between oil price and fuel prices have more to do with the business of refineries than with the business of production.