On Monday, the group announced a small oil production cut of 100,000 barrels per day to bolster prices. Just last month, OPEC+ decided to increase oil production by the same target of 100,000 barrels per day. “Essentially, it’s like zero sum for the market,” said Ellen Wald, president of Transversal Consulting. “The increase [in oil production] last month was also almost nothing… and now we’re talking about removing them.” Wald said the underlying message is more important than the clip itself. “The symbolic meaning of this cut is, I think, much more important for the market,” Wald said, adding that the price of Brent crude was “so depressed” after the decision. Oil prices rose about 3% on Monday after the OPEC announcement. The rally has since lost steam, posting gains in Tuesday’s trade. Brent crude is around $95 a barrel, while West Texas Intermediate is hovering around $88 a barrel. “It’s more of a political snub towards the President [Joe] Biden as well as the European Union, signaling that OPEC will have its way and they want to protect those higher prices,” said Andy Lipow of Lipow Oil Associates, who also said the cut was “fairly insignificant.” “[They’re] basically saying — look, we’re talking about a cut. A cut is absolutely within our power, and we may well make a cut that would be much more significant than that,” Wald said, adding that Russia’s influence is quite significant in OPEC+.
Price cap may end ‘suppressing oil price’
Both analysts were cautious about the effectiveness of Russian oil price caps. Last week, the G-7 countries agreed to cap Russian oil prices to reduce funds flowing into Moscow’s war chest and lower oil costs for consumers. “[It] it doesn’t look like India is really going to sign here. And neither does China,” Wald said. He explained that even if some countries agree not to buy oil from Russia, other countries such as India and China could buy those barrels at a discount. “I just don’t see how this works in any way other than it ends up pushing up the price of oil for everyone except those who continue to buy Russian oil,” he said. Likewise, Lipow said the price cap is untapped because both China and India are “already benefiting from deeply discounted Russian oil” and have nothing to gain by joining the bandwagon. Lipow added that the price cap protects consumers from paying higher prices rather than reducing demand for oil. “They have no incentive to reduce demand… This means governments across Europe will print money to send to consumers and go deeper into debt.”
