After the unexpected OPEC + decision delays by Saudi Arabia, and the 1 million bpd crude oil export cut, stability has returned to the market. Crude oil prices continue to rise, re-cruising around the $ 55 per barrel Brent mark.
Trade dialogue, oil settlement concept: national flags with oil pump and oil refining factory with fog and backlight at night. Energy Industrial Concept.
Analysts are still reeling from the Cliffhanger statements made by Saudi Energy Minister Prince Abdulaziz bin Salman Al Saud, not only positively shocking the market with unilateral Saudi export cuts, but also reiterating the situation the Kingdom has been in for decades. Is catching up, it’s again. Push for the position of leading swing manufacturer in the market. Although it is clear that the state is in a strong position, and it is its historical or strategic authority, although it should be taken with a grain of salt.
The main message of the market should now come to their mind is that OPEC + is weak, not by failure but by its success. After struggling to regain market stability, facing the glare of an oil market in times of COVID-19 crisis, fighting the historic levels of storage of crude oil and petroleum products, some green leaves themselves as OPEC + and Other producers are showing on the branches of trees.
While oil and non-oil commodities have been showing almost all green figures in the past months. COVID-19 vaccines in Washington a few days, and news of the expected Biden administration seems to be the ruling market. Crude oil demand and price settings are moving towards pre-COVID levels, but rational indicators are still the opposite.
Global markets are still highly volatile, riding with a quantitative easing and government support programs, but heading towards a rocky future when these support programs in the United States, the European Union, and elsewhere have ended. At the same time, increased lockdowns in Europe, and even now in Japan and China, do not bode well for the soon-to-be major economic slowdown. Making OPEC + decisions is only partially taking these events into consideration.
The growing split between OPEC leader Saudi Arabia and Russia appears to be growing. Moscow’s push to increase oil production, by adjusting the existing production cut agreement to allow an additional 500,000 bpd in the coming month on the market, met a strong Riyadh response, with Putin’s wishes met with Riyadh’s refusal.
A tough internal discussion forced the parties to find a Salomon ruling that some OPEC + members could officially increase exports, and Saudi Arabia had to bear the brunt. At first the responses were positive, but Riyadh’s oil gurus understood that OPEC + was already overproducing, so it needed more to do. The Kingdom’s decision to cut its exports by 1 million bpd, to bring its own exports to its lowest level in years, was necessary to keep the market stable. The overproduction of OPEC + is still not fully marketed. The threat of additional volume in the following weeks by Iraq, Libya and potential Iran could destabilize markets very soon.
The Kingdom is playing a tricky game, not only looking at the oil markets, but also adding to its decision for geopolitical development in the first few months of 2021. With 1 million bpd of Saudi crude on paper, Riyadh maintains its stand with Russia. place. Saudi Crown Mohammed bin Salman and his elder brothers are capable of playing geopolitical cards for their own benefit.
By keeping Putin’s link with the MBS, Riyadh will be able to counter some of the expected outflows of the Biden administration’s inauguration. At the same time, being flexible for his own OPEC brothers, especially Crown Prince Mohammed bin Zayed of Abu Dhabi and Iraq, has the flexibility to strengthen his position. Nevertheless, not all Riyadh ministers will be able to smile to bear the financial brunt of being a swing producer. The state is hit by low oil prices and revenue, as the latter is required to implement MBS’s economic diversification plans. Without successes there, the Crown Prince’s strategy for 2021, including assuming the position of his father, would be under severe pressure.
It should be expected that the current flexibility of the state should not be allowed. The outright surprise is not a long-term strategy, as high revenue and economic stability are needed very soon. Relying on high oil prices for 2021 is still wishful thinking if global economic drivers are hit or Riyadh’s current situation will be changed.