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The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers held a ministerial meeting on the 5th and decided to reduce production significantly from November, equivalent to 2%
of global oil demand.
This runs counter to the long-standing call for production increases by the Biden administration in the United States
.
After the news broke, Biden publicly expressed disappointment, and the White House criticized the major oil producers for being short-sighted
.
The US media ridiculed Biden for lobbying for several months of pressure, and finally failed
.
At a sensitive time, why are the world's major oil producers insisting on cutting production? What impact will this move have on the energy market? And how will the United States respond to oil-producing countries that do not obey orders? A series of question marks dominate the front pages
of global media.
Take a bold step?
On the 5th, the "OPEC+" (OPEC and non-OPEC) oil producers led by Saudi Arabia and Russia held a ministerial meeting
in Vienna, the capital of Austria.
The participating countries agreed to reduce oil production by an average of 2 million barrels
per day starting in November.
It was OPEC+'s first face-to-face meeting since March 2020 and the largest production cut decision
since then.
OPEC said in a statement after the meeting that the decision is based on "uncertainties about the global economic and oil market outlook" and aims to strengthen long-term guidance for the oil market and intervene to prevent problems before they occur
.
Since the beginning of this year, international crude oil prices have been on a "roller coaster": close to $79 per barrel at the beginning of the year; surged to around $130 a barrel in March, the highest level in 14 years; Oil prices have fallen by about 20 percent
over the past few months as markets fear the global recession will dampen demand.
Public opinion believes that the production cuts are aimed at supporting oil prices, which is not surprising, but the resoluteness of the pace is somewhat unexpected
.
On the one hand, while major oil-producing countries have been increasing production for more than a year, policy direction has recently begun to change
as oil prices come under pressure.
Last month, OPEC+ lowered monthly production for the first time in more than a year, expressing concern about
the market by reducing production by an average of 100,000 barrels per day.
When markets were indifferent and New York oil prices fell below $80 a barrel, Saudi Arabia seemed to have decided it needed to send bolder signals
.
On the other hand, the oil giants are still under intense pressure
from the White House ahead of the meeting in Vienna.
The United States has been lobbying Saudi Arabia, the United Arab Emirates, Kuwait and other countries to increase production to stabilize oil prices
.
Li Shaoxian, dean of the Institute of Chinese Arab Studies at Ningxia University, pointed out that OPEC+ symbolically announced an average increase of 100,000 barrels per day in August in response to US demands
.
Now, just two months later, it has been decided to cut production by an average of 2 million barrels per day, which is a surprising
contrast.
There are several main reasons for this
.
First, under the background of the Russian-Ukrainian conflict, compared with the high price of natural gas, coal and other energy sources, the current level of oil price rise is low, and the shock is lower
after experiencing a wave of rising markets.
Second, geopolitical games seriously affect the world economic outlook, the possibility of economic recession increases, oil demand may decline, and oil-producing countries need to take precautions
.
Third, Europe has imposed several rounds of sanctions on Russia and is preparing to impose price
limits on its oil exports.
This will pose a threat to the interests of oil producers and market rules, and OPEC+ will have to react
preventively.
Zou Zhiqiang, a researcher at the Middle East Research Center of Fudan University, believes that this is the embodiment of "OPEC +" starting from its own interests and grasping the largest discourse power of
oil supply.
It makes decisions based on judgments
about market supply and demand and the fundamentals of the world economic situation.
At present, more than half a year has passed since the Russian-Ukrainian conflict, and the fear of international energy shortage has been alleviated
to a certain extent.
Europe's natural gas reserves are abundant, and the shock effect of geopolitical factors has declined
.
However, there is great uncertainty about the prospects for world economic growth, and market fundamentals may be oversupplied between now and the end of the year
.
Therefore, OPEC+ hopes to have a substantial impact
on the international energy market by significantly reducing production.
A shock to the market?
Driven by the news of production cuts, as of the close of the 5th, London Brent crude oil futures rose 1.
7% to $93.
37 per barrel; New York light crude oil futures rose 1.
4% to close at $
87.
76 per barrel.
Due to the current global high inflation trouble, "OPEC+" chose to reduce production and protect prices at this time, which inevitably caused concern
.
Will global oil supply be shaken by this? Will inflationary pressures intensify further?
From a public opinion point of view, the decision to cut production may have a certain impact on Europe, the United States and low- and middle-income countries, but it may have a limited
effect in boosting oil prices.
Let's look at the impact first, which is mainly reflected in both psychological and practical aspects
.
Psychologically, the cuts are likely to shift the market's attention from weak demand to tight
supply.
Oil will again become a scarce commodity, and Europe is likely to remain vigilant
.
In fact, some emerging economies, low- and middle-income countries will suffer price shocks, Americans may feel oil prices rise again in a few weeks, and the White House will face the political risks
it is trying to avoid.
Looking at the effect, market participants believe that boosting oil prices may be limited
by multiple factors.
First, the actual production of many oil-producing countries is below the quota level, and the average daily production reduction in major oil-producing countries is expected to be only half of the nominal target from November, about 1 million barrels
.
Second, if energy prices continue to rise, the Energy Consumption Congress will take hedging measures to stifle demand to suppress prices
.
"The production reduction of 'OPEC+' has a strong weather vane significance, the market is moving with the wind, and international oil prices have been supported in the short term and
rebounded.
" Zou Zhiqiang pointed out that this may bring some shocks to Europe, which is in dire need of imported energy, as well as some low-income countries with greater pressure on energy payments, but the impact may be short-lived
.
The sharp fluctuations in oil prices in the first half of the year have provided a certain buffer
for the outside world.
Li Shaoxian believes that in the case of a weak global economy and an uncertain market situation, the latest production cut decision has the nature of
a stone-throwing way.
Let's put the momentum of 2 million barrels per day on the table, the actual production reduction and the set goal are two different things
.
In terms of short-term market reactions, oil prices have indeed been boosted and there has been a more obvious increase
.
A knife in the back?
At the sensitive moment when the US midterm elections are approaching and Biden is trying to suppress oil prices, "OPEC +" is going in the opposite direction, which naturally triggers strong dissatisfaction in
Washington.
Some analysts said that this is a knife and a heavy blow to Biden by major oil producers, and it is also Biden's diplomatic failure, indicating that Saudi Arabia and the United States are drifting apart
.
Just 3 months ago, Biden personally visited Saudi Arabia to show favor
to Crown Prince Mohammed.
In recent months, the United States has repeatedly called for
an increase in production.
Biden's midterm election campaign claims are largely based on
falling energy prices.
With oil prices falling in recent weeks, Democrats seem to feel a new momentum
.
However, with only a few weeks left before the U.
S.
midterm elections, Saudi Arabia has ignored U.
S.
pressure to make a decision
to cut production.
Some Democrats have criticized the president for downplaying and subservient to the Saudis
.
They advocate showing toughness ahead of the midterm elections and increasing penalties
for Saudi Arabia.
Some Democratic lawmakers have suggested that Saudi Arabia's move is tantamount to helping Putin in the Russian-Ukrainian conflict, and Biden should consider withdrawing troops and military presence
from Saudi Arabia.
So far, the Biden administration has been cautiously
worded.
It appears to be more focused on initiatives
to expand energy supplies than to punish Saudi Arabia.
For example, releasing more strategic oil reserves, seeking reconciliation with oil-producing Venezuela, and demanding that U.
S
.
energy companies lower prices and restrict exports.
Li Shaoxian pointed out that Saudi Arabia's decision is indeed eye-catching, and the anger of the United States is not difficult to understand
.
Biden's visit to the Middle East in July under pressure yielded little results, and now Saudi Arabia is indifferent to the pressure on the United States, which is equivalent to giving Biden a slap in the face and giving a louder second blow
.
If oil prices rise, it will have a negative impact
on the US economy and the Biden administration's policy priorities to control inflation.
"So why does Saudi Arabia dare to defy the will of the United States?" Li Shaoxian believes that it shows that the situation has indeed changed
.
First, after the conflict between Russia and Ukraine, Saudi Arabia, the United Arab Emirates and other Middle Eastern oil producing countries have been drawn by Russia and Europe, and there is
more room for choice and maneuver.
Second, the United States has limited
means of retaliation against Saudi Arabia.
There are various voices in the United States, such as severing alliances with Saudi Arabia and stopping arms sales, but in the context of US strategic contraction, Saudi Arabia is still its main dependence in the Middle East
.
Therefore, the US punishment and retaliation against Saudi Arabia are also limited
.
From the perspective of the international energy pattern, Zou Zhiqiang pointed out that in the past period of time, the international energy market has always been a three-legged stand firm in Saudi Arabia, the United States and Russia, and the "OPEC +" cooperation mechanism
has been formed around 2017.
Now, it may have entered a new period of
fine-tuning.
The strategic autonomy of Middle Eastern oil-producing countries such as Saudi Arabia is rising, Russia's position is being suppressed, and the United States' position is relatively stable, but its ability to influence the international energy market is limited
.
The development of shale gas will allow the United States to achieve energy independence on its own, but the United States cannot single-handedly determine global policy goals
in the international energy field.
Therefore, it needs the cooperation of the oil producers in the Middle East, and its political appeal to the latter is
stronger than before.
The interests of Middle Eastern oil producers and the United States are at odds, and the latter also hopes to take the opportunity to improve its international energy power position
.
However, both scholars mentioned that Saudi Arabia's failure to listen to the United States does not mean that it has broken
with the United States.
Saudi Arabia is still inseparable from the United States
in areas such as security.
Its cooperation with Russia is largely driven
by common interests.