The decision of the “OPEC Plus” alliance to commit to the gradual increase in oil production despite its high prices, raised fears that this would impede the recovery of the global economy from the Corona pandemic, as it coincides with the rise in gas and coal prices to record levels.
The "OPEC Plus" alliance, which includes some of the largest oil exporters in the world, announced last week that it would not increase its oil production by more than 400,000 barrels per day, which it was adding each month, meaning maintaining the planned increase in oil production for the month of November despite the high the prices.
With this decision, the "OPEC Plus" alliance ignored the pressures from major consuming countries such as the United States and China, which demanded to rein in the rising oil prices. The coalition attributed its cautious decision to the uncertainty around the Corona pandemic.
It is noteworthy that the decisions of “OPEC Plus”, an alliance of countries from the Organization of Petroleum Exporting Countries (OPEC) led by Saudi Arabia with a number of other oil-exporting countries outside the organization such as Russia, have led to a rise in crude oil prices several times during the past years. This has added to inflationary pressures that consuming countries fear could impede economic recovery from the Corona pandemic.
And during the last Monday, which coincided with the “OPEC Plus” decision, the price of Brent crude exceeded $ 81 a barrel, double last year. While the price of West Texas crude exceeded $ 78 a barrel, amid high demand for fuel with the rapid economic recovery plan from the pandemic.
The supply of oil is still shrinking with major oil exporters reluctant to pump more, estimated at millions of barrels per day of surplus oil, while US shale oil producers are scrambling to attract investment to boost production.
In this, Bjornar Tonhaugen, head of oil markets at Rystad Energy, said that the results of the OPEC Plus meeting "were not surprising, but with Brent crude prices exceeding the $80 threshold per barrel, this level confuses customers and delights producers, but caution must be exercised."
Oil prices were boosted by the decisions of the “OPEC Plus” alliance, which is struggling to meet the pre-determined increase of an additional 400,000 barrels per day on a monthly basis, as many are due mainly to issues related to employment in Nigeria and Angola, which is the second largest oil exporter in Africa, as well as issues Maintenance in Kazakhstan and the aftermath of the hurricanes that hit the Gulf of Mexico.
Commenting on this matter, Kieran Clancy, an economist at the British think-tank Capital Economics, said that if this situation continues as it is currently in the sense that "production fails to reach the group's goals, oil prices may remain high until next year." "
Increasing fears of inflation
The large rise in oil prices coincided with another rise in supply due to the record increase in natural gas and coal prices, which led to a rise in inflation to levels that are the highest in years in Europe, which cast a shadow on industrial production. In Europe, natural gas prices have risen to record levels with limited supplies from Russia as well as increased demand for liquefied natural gas from Asia. To make matters worse, gas stocks in Europe have fallen to their lowest level in more than a decade.
The decline in gas supplies means that companies have found themselves forced to turn to oil and coal as a source of energy production, which in turn has led to an increase in demand for these two commodities.
Tonhaugen explains that this may lead to an increase in demand for oil over the next two months, adding that plans for "economic recovery, the approaching cold winter, and the transition from gas to oil as a fuel source in Asia ... all point to a rapid increase in demand to up to 100 million barrels per day in December. However, he adds, "But if prices continue to rise, the elasticity in demand for oil may start to have an effect, as consumers, motivated by cost, will reduce consumption." The economist adds that the oil-exporting countries, especially the “OPEC Plus” alliance, should be careful not to allow “prices to inflate too much, because in this case we may see a negative reaction that may be reflected in the economic recovery after the pandemic.”
It is noteworthy that the “OPEC Plus” alliance agreed in April of last year to make cuts to its total production of crude oil by 9.7 million barrels per day, equivalent to 10 percent of total global supplies due to the economic repercussions of the Corona pandemic and what it caused. of disrupting the global economy. The alliance is working to phase out production cuts as oil demand picks up again.
This prompted Tonhaugen to say that the "OPEC Plus" alliance now owns the "knife and cake in the oil market, especially, and that the alliance confirms that it owns the lion's share of the remaining unused supplies in the world." This dominance, he adds, "makes OPEC Plus the only market player that can significantly redirect market conditions. And regardless of any unplanned outages or even (exceptional) weather conditions."
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