What can Saudi Arabia UAE United Arab Emirates do to reduce oil prices?
World biggest oil producers will hold a key meeting on Wednesday to decide how much oil they can keep on market from September.
UAE Saudi Arabia : This meeting is taking place a few weeks after US President Joe Biden visit to Saudi Arabia. During this visit United State US President had to personally convince Saudi Arabia about the availability of more oil in the market in order to control the rising prices.
Crude oil prices have-been consistently above $100 a barrel since February pushing up prices in many countries.
Why is this meeting important ?
US White House hopes that the 13 core members of the Organization of the Petroleum Exporting Countries OPEC will decide to increase oil supplies. But it is not necessary. OPEC was established in 1960 as a cartel with the aim of fixing the world supply & price of oil.
Saudi Arabia is the largest single oil producer in cartel & after meeting Saudi Arabia Crown Prince Mohammed bin Salman President Mr Joe Biden said he expected oil supplies to increase.
However Saudi officials have-also stressed that any decision to increase supply would be made in consultation with OPEC Plus.
OPEC Plus OPEC+ is a broad group of 23 oil exporting nations including Ru-ssia which meets monthly in Vienna to decide how much crude to sell on the world market.
Can oil prices fall ?
In April 2020 OPEC Plus introduced a series of cuts which continued throughout coronavirus pandemic as demand fell. From the year 2021 this supply has-started to recover gradually.
At the group last meeting OPEC Plus decided to slightly increase its production capacity for month of August.
But this can not be done by just turning on the button. At least statistically several cartel members such as Angola Nigeria & Malaysia are already struggling to meet their current monthly supply targets.
Along with this due to Western sanctions Russian supplies have-also decreased. Meanwhile Moscow has increased its shipments to customers in Asia such as China & India.
Most important oil producing countries Saudi Arabia and its neighboring country the United Arab Emirates are countries that have some excess oil production & supply capacity compared to other countries.
How ever Saudi Arabia production target for August is 11 million barrels per day which energy experts believe is already too high leaving little room for further increases. Much is being reliant on the decisions of these 2 countries although there may be uncertainty over energy demand in the coming months.
Rising interest rates the w.. in U... a looming recession in many Western countries could all combine to prove detrimental to this goal.
Experts believe that these factors may prompt the group to be cautious & un-willing to increase its production dramatically.
Concern for Saudi Arabia and OPEC Plus is that there are many unknowns said Karen Young a senior fellow at the Middle East Institute in Washington DC. No one knows where oil market will be 06 months from now or next year.
This means that Saudi Arabia & UAE will want to use their excess supply wisely he added.
These 02 countries do not want to be in a situation where they use their limited spare capacity to increase production & then suddenly if future demand increases or decreases she says. They have-no room to make adjustments.
For Saudi Arabia the alliance between the OPEC plus group is paramount & it will avoid any decision that threatens it.
What will happen to oil prices now ?
OPEC itself is forecasting that global oil demand will increase in 2023 albeit at a slower pace than this year.
Analysts at the alliance say this will+be driven in part by progress in China containment of the coronavirus.
Meanwhile estimates from the International Energy Agency & the US-Energy Information Administration suggest that oil demand will-continue to grow rapidly despite rising inflationary concerns & weak economic growth in several countries.
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This means that oil producers may find themselves increasing oil production at a faster rate over the next 5 years to balance supply & demand.
There a lot of volatility in the markets but many people do not expect a sustained drop below $100 a barrel said Ben Cahill a senior fellow at the Center for Strategic & International Studies in Washington.
Gasoline prices in the united state US have already touched a 13 year high this year.
United State America U.S. has-been releasing about 1 million barrels a day from its strategic petroleum reserve since April as part of its plan to supply market with about 180 million barrels in the ⁰⁶month period ending in late October.
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Although Ben Cahill warned that once this rollout stalls supply will become even tighter putting more pressure on prices.
We have-not yet seen any signs of major investment to increase production he added. So if the demand increases we will not have enough supply to balance markets.
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