Analysis: OPEC+ Leaders Like $100 Oil, Won’t Necessarily Defend It
- Analysts, OPEC+ watchers, see $90 as floor price
- $100 oil helps industry investment, won’t hurt economy – source
- Russia prefers 100 dollars because it is forced to sell at a discount – source
- OPEC+ policy is not driven by defending a certain price source
LONDON, Sept 16 (Reuters) – Saudi Arabia and Russia, the de facto leaders of oil producer group OPEC+, consider $100 a barrel a fair price that the global economy can absorb, Reuters has been told. sources close to the governmental thinking of the two countries. .
The Organization of the Petroleum Exporting Countries, Russia and other allies, known as OPEC+, pump more than 40% of the 100 million barrels per day of global production. The group exerts a strong influence on world fuel prices through its supply policy.
OPEC+ does not explicitly indicate its preferred price level. Senior officials in Saudi Arabia and Russia have said in recent weeks that the group’s policy goal is to ensure global oil supply matches demand, not to defend a certain price.
Join now for FREE unlimited access to Reuters.com
“Our goal is simple – to look at the balances between supply and demand over a period of at least a year and more often a year and a half,” a senior OPEC+ source familiar with the situation told Reuters. topic.
“There are too many variables beyond human control, for example COVID in 2020 and the financial crisis of 2008, so we have to be humble.”
However, one of the main measures of the balance between supply and demand is price. When demand threatens to exceed supply, prices rise, and vice versa. Statements by group members and whether they are increasing or reducing supply give an idea of what producers consider a reasonable return for their oil.
Recent signals suggest a preferred price level of around $90-100 a barrel for Brent, the three government and analyst sources told Reuters.
That’s higher than the previously perceived level of around $75 that OPEC+ watchers saw as the price the group wanted to see.
Oil traded between $100 and $120 for most of the second quarter, alarming governments in many countries already facing runaway inflation.
The United States has pushed countries to push Saudi Arabia and other producers to pump more to rein in rising prices for more than a year.
But major oil producers, including Saudi Arabia, have made public statements in recent weeks to support prices that had fallen to $90 amid weakening prospects for the global economy and demand.
These statements culminated in OPEC+’s token cut to its oil production target of 100,000 barrels per day (bpd), which many analysts interpreted as a signal that the group would defend prices above $90. Read more
The price corridor has risen with rising material costs and inflation, said a separate source briefed on the Saudi government debates and another industry source, factors that mean producers need to generate revenue higher from oil to balance their budgets.
“An oil price at $120-130 is risky and Saudi Arabia will prevent that, but at $100 it won’t have a huge impact on the global economy – Saudi Arabia would be comfortable with that. price,” said one of the three sources.
While most OPEC+ producers depend on oil revenue and have different oil price requirements to balance their budgets, Saudi Arabia and Russia have no official price target. Saudi officials haven’t spoken openly about a price target or price aspiration in years.
‘A boon for the state’
The coffers of oil-producing countries, including Saudi Arabia, have been depleted by the pandemic-induced price crash in 2020. High prices are helping them fill their coffers.
The International Monetary Fund in April projected Saudi Arabia’s equilibrium oil price – the oil price at which it would balance its budget – at $79.20 a barrel. The Saudi government does not disclose its supposed equilibrium price of oil.
“More than $100 is a windfall for the state,” said Karen Young, senior fellow at the Middle East Institute in Washington. “I think the comfortable level is above $80, but the fiscal policy is flexible.”
The $100 oil is also needed for companies around the world to maintain healthy levels of investment to ensure supply keeps up with demand, the source familiar with the Saudi government’s thinking said.
Even after falling to $90 a barrel, oil remains relatively expensive.
Brent only moved back above $90 in February after trading below that level since 2014.
Russia has different motives than Saudi Arabia for its price comfort zone. This year, Moscow has had to sell its crude at a discount to benchmark prices to buyers in Asia, as Europe and the United States have banned or discouraged imports of Russian oil in retaliation for the war in Ukraine.
Russia wants oil at no less than $100 to make up for the discounts, said two industry sources familiar with Russian thinking. Deputy Prime Minister Alexander Novak dismissed the idea that there was price collusion.
“We are not talking about price formation, but about the adequacy of supply on the market, so that on the one hand there is no excess and on the other hand that there is no there’s no shortage,” Novak said this month.
OPEC has made sporadic attempts to keep prices at a certain level in the past. In 2000, the group proposed a price band mechanism to keep oil between $22 and $28. When prices jumped well above $28 a few years later, the band was suspended.
Saudi Arabia and OPEC have also favored oil at $100 on several occasions. Saudi Arabia first approved $100 oil in 2012 and in 2018 Saudi officials were saying in private meetings that $80 to $100 oil was desirable, sources said at the time.
These lofty aspirations have been pushed into the background after developments including the US shale oil boom and a resulting global oversupply and price crash made them unrealistic, as did falling oil prices. prices during the COVID pandemic.
Now the tight supply is again supporting prices. Shale growth has fallen down OPEC’s list of concerns and forecasters still expect solid oil demand growth in 2023 despite weaker economic growth and recession fears.
OPEC+ seemed to be looking for $90 as a minimum price, said Tamas Varga of oil broker PVM, referring to Brent.
G7 plans for a Russian oil price cap aimed at cutting Moscow’s revenue while keeping its oil flowing could further support prices if Moscow retaliates, he added. Read more
“This implies that the alliance intends to defend the $90 price floor and comes at a time when Russia’s proposed oil price cap could lead to retaliatory action by Russia, further tightening the oil balance,” he said.
Join now for FREE unlimited access to Reuters.com
Additional reporting by Reuters OPEC team, Rowena Edwards, Ahmad Ghaddar, Yousef Saba and Aziz El Yaakoubi, Editing by Dmitry Zhdannikov, Simon Webb, David Evans and Jason Neely
Our standards: The Thomson Reuters Trust Principles.