A Syrian soldier is seen in an oil field in the countryside of Qamishli, northeastern Hasakah province, Syria, on Nov 5, 2019. (STR / XINHUA)
The OPEC+ decision to curb oil production by 2 million barrels per day from November anticipates an economic downturn and is rooted in deep strategic value, analysts said.
They said some United States politicians have overreacted by accusing the Organization of the Petroleum Exporting Countries of politicizing the oil cut and even going so far as to call for re-evaluating US-Saudi Arabia relations. Some Western media reports insinuated the organization has sided with Russia in its conflict with Ukraine.
“OPEC++ consists of 23 countries; its decisions are made consensually. The reaction of some US politicians to (the OPEC+) decision is overblown and unwarranted. They are influenced by their anxiety over the upcoming midterm elections in the US Congress,” said Ebrahim Hashem, an Asia Global Fellow at the University of Hong Kong’s Asia Global Institute.
Luo Zuoxian, head of intelligence and research at the Sinopec Economics and Development Research Institute, said the reduction of production quotas will have a temporary impact but might not lead to a drastic increase in oil prices over the long term
“Strategically, the mismanagement of the US oil industry, and the deliberate lack of investment in oil production and refining capacity expansion, are major contributory factors in the high prices the American consumers are experiencing at the pump,” Hashem, who is also former adviser to the chairman of the Abu Dhabi Executive Office, told China Daily.
In an interview with CNN on Oct 11, US President Joe Biden agreed that it was time to rethink US-Saudi relations and said there would be “some consequences” for Riyadh for siding with Moscow.
Some Democrat members of the US Congress are calling for a reduction in military sales to Saudi Arabia. In August, the Biden administration approved the potential sale of more than $5 billion in arms to Saudi Arabia and the United Arab Emirates.
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In a statement released on Oct 5, the White House called the OPEC+ decision “shortsighted” as the global economy was dealing with the continued negative impact of the Russia-Ukraine conflict.
“By deciding to reduce oil production by 2 million barrels a day, OPEC+ is trying to proactively address the expected economic downturn and prevent chaos in the oil markets. The decision has been made based on rigorous technical analysis of the global economy and the market trends of oil demand and supply,” said Hashem.
Saudi Arabia’s Ministry of Foreign Affairs, in a statement on Oct 13, said its government expresses “its total rejection” of the accusations that it was “taking sides in international conflicts and that it was politically motivated against the United States of America”.
Further, while it strives to preserve the strength of its relations with all friendly countries, it “affirms its rejection of any dictates, action or efforts to distort its noble objectives to protect the global economy from oil market volatility”.
It also said resolving economic challenges “requires the establishment of a non-politicized constructive dialogue, and to wisely and rationally consider what serves the interest of all countries”.
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Osama Rizvi, an energy and economic analyst at data monitor Primary Vision Network, said the OPEC+ cuts of 2 million barrels per day have taken many by surprise.
“However, as prices have been falling recently as recessionary fears overtake supply concerns, the oil-producing countries know that the demand will fall and that markets are already well supplied, if not oversupplied. Therefore, they want to keep oil prices at a level that provides them budgetary cushion,” Rizvi told China Daily.
Rizvi also said there is an inverse correlation between the dollar and commodities. As all commodities are priced in US dollars, a strong dollar makes it expensive for other countries to buy oil, for example.
“A rising dollar weakens other currencies. The dollar index is at its 20-year high and many developing countries are facing issues of weakening currency, falling reserves and rising deficits. This will further affect oil demand,” Rizvi said.
At its last meeting in September, OPEC+ decided to reduce oil production by 100,000 bpd this month. Crude prices have fallen to roughly $80 a barrel from more than $120 in early June amid growing fears about a possible global economic recession.
Asif Shuja, senior research fellow at the Middle East Institute at National University of Singapore, believes that OPEC’s latest move has deep strategic value and is linked to the US’ plan to put a price cap on Russian oil before the European embargo on Russian oil takes effect on Dec 5
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Luo Zuoxian, head of intelligence and research at the Sinopec Economics and Development Research Institute, said the reduction of production quotas will have a temporary impact but might not lead to a drastic increase in oil prices over the long term.
The decision to cut production to support oil prices will balance the rising shale oil and gas production in the United States, he said.
Asif Shuja, senior research fellow at the Middle East Institute at National University of Singapore, believes that OPEC’s latest move has deep strategic value and is linked to the US’ plan to put a price cap on Russian oil before the European embargo on Russian oil takes effect on Dec 5.
Shuja said when the US has “made no secret” of its plan to deprive Russia of oil money by placing a price cap on Moscow’s oil, the substitution of Russian oil with the surplus oil pumped by Saudi Arabia and other countries could be read by Russia as a definite stance against it in the ongoing conflict.
Zheng Xin in Beijing contributed to this report.