Analysts say OPEC+ decision is ‘political contempt’ and ‘symbolic’
Analysts said that the OPEC + decision to implement a small production cut is more than a political statement and a symbolic message sent by the alliance.
On Monday, the group announced a slight cut in oil production by 100,000 barrels per day to support prices. Just last month, OPEC+ decided to increase oil production with the same target of 100,000 barrels per day.
“Basically, it’s like a zero sum for the market,” said Eileen Wald, president of Transversal Consulting. “the increase [in oil production] Last month there was almost none… and now we’re talking about taking those away.”
Wald said the underlying message is more important than the cut itself.
“The symbolic meaning of this cut is, in my opinion, much more important to the market,” Wald said, adding that the price of Brent crude “has risen a lot” in the wake of the decision.
Oil prices rose about 3% on Monday after the OPEC announcement. The rally has since lost steam, paring gains made in Tuesday’s trading. Brent crude stands around $95 a barrel while West Texas Intermediate is hovering around $88 a barrel.
“It is more than political disdain for the president [Joe] Biden and the European Union, indicating that OPEC will go its own way and that they want to protect those high prices, said Andy Lebow of Lipow Oil Associates, who also stated that the cut was “too small.”
“[They’re] Basically I say – look, we’ve been talking about cutting. The cut is completely within our power and we may implement a cut that will be much more important than that, Wald said, adding that Russia’s influence is very important in OPEC+.
The price ceiling may end with an “oil price hike”
Both analysts were skeptical about the effectiveness of the Russian oil price ceiling.
Last week, the G7 countries agreed To reduce Russian oil prices to reduce the flow of money to the Moscow War Fund and to reduce the cost of oil to consumers.
“[It] It doesn’t look like India is really about to sign in here. Neither does China.” She explained that even if some countries agreed not to buy oil from Russia, other countries like India and China could buy those barrels at a discount.
“I don’t see how it is done in any way except that it ends up raising the price of oil for everyone, except for those who keep buying Russian oil,” she said.
Similarly, Lipow said the price cap is not viable because both China and India are “already benefiting from heavily discounted Russian oil” and have nothing to gain from joining the shopping cart.
Lippo added that the price cap protects consumers from paying higher prices rather than reducing demand for oil.
“They have no incentive to lower demand…what that means is that governments across Europe will print money to send to consumers, and they will go deeper into debt.”