Key Highlights
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OPEC’s and OPEC+’s commitments to dampen oil prices are meaningless
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OPEC leader Saudi Arabia itself has long overstated its oil capabilities
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OPEC and Saudi Arabia have reaffirmed support for Russia within OPEC+
There are several reasons to believe that crude oil prices will start to decisively come down again soon – planned US supply increases, a new JCPOA deal, a sustained drop in demand from key oil importers – but assurances from OPEC and OPEC+ (‘plus’ Russia) are not one of them. Indeed, they are to all intents and purposes meaningless in market terms, if the example of OPEC’s de facto leader, Saudi Arabia is anything to go by.
Technically, to begin with, despite repeated comments from Saudi Aramco’s chief executive officer, Amin Nasser, that the company expects to boost its oil production capacity to 13 million barrels per day (bpd) by 2027 ‘from 12 million bpd’ now, there is no evidence whatsoever that either statement is true. It is an incontrovertible fact that Saudi Arabia’s daily production from 1973 to the end of last week is an average of 8.192 million bpd of crude oil.
Saudi Arabia’s ‘Smoke And Mirrors’ Production Figures
Additionally, during the 2014-2016 Oil Price War when Saudi Arabia absolutely needed to produce as much oil as it could to achieve its goal, it only managed to ‘produce’ above 10.5 million bpd for one very short period. More recently, even with new supply coming from Saudi Arabia’s half share of the Partitioned Neutral Zone it runs with Kuwait, there have only been two occasions when the country has produced more than 11 million bpd, and both were for equally short periods.
The dichotomy between Saudi Arabia’s statements on its crude oil capabilities and reality is that, unlike the official definition of ‘spare capacity’ as laid down by the Energy Information Administration (EIA), Saudi Arabia includes within its own use of the term spare capacity every drop of crude oil that it can get hold of: including oil supplies in storage, supplies that can be withheld from contracts and re-directed into those stored supplies, and any oil that it can buy through brokers in the spot market and then sell on as its own.
OPEC’s Political Allegiance To Russia
Politically there are further reasons for scepticism, with Saudi Arabia’s Crown Prince Mohammed bin Salman (MbS) reiterating recently his country’s “commitment to the ‘OPEC+’ agreement” – working alongside the agreement’s other key partner, Russia. MbS sought to couch this extraordinary re-assertion of his country’s alliance with Russia in terms of the “the kingdom’s keenness on the stability and balance of oil markets”. However, this idea was undermined by the near-concomitant announcement of that the ongoing modest rise of 400,000 barrels per day (bpd) in collective output seen over the past few months would continue, despite the economic damage being done to many developed economies by current high oil and gas prices.
This article was originally posted on FX Empire
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