OPEC Plus and the desired balance in the oil markets
There is no dispute that the global oil market has been the most exposed to shocks in the past few years. After the market began to gradually recover from the consequences of the Corona pandemic, that pandemic that plunged demand, and then lowered prices to low levels that revolve around the barrier of $ 40 a barrel in its first year 2020, the Russian-Ukrainian war came as a new shock that severely affected the supply and demand sides in This market, pushing prices to approach the barrier of 120 dollars a barrel last May.
As soon as the international bloc “OPEC Plus” pledged earlier this year 2022 to support oil supplies to the markets, prices slackened again, reaching about $90 a barrel in early October.
However, a new decision by this bloc to reduce oil production by two million barrels per day was justified on its part as a response to the uncertainty that currently prevails in international markets, as it aims to enhance long-term stability in the international oil market.
Despite the multiplicity of international reports that indicate the existence of non-economic motives behind this decision, the economic determinants that may explain OPEC Plus’ resort to this reduction revolve around three main issues, the first of which is the end of the era of cheap oil.
The second is the need to stimulate oil investments. The third is the requirements to support the efficiency and productivity of the activities of the oil sector. In light of the disruption that affected global supply chains and is expected to continue until the end of next year 2023, and with the rise in food basket prices and the prices of all industrial goods, it is no longer acceptable – from the perspective of “OPEC Plus” – for the price of a barrel of oil to fall below the $90 barrier, with What this implies is that this bloc has become refusing to barter cheap oil for commodities whose price is steadily increasing.
And while the continuous raising of interest rates on US bonds to curb inflation in the American market has withdrawn an important share of international liquidity and redirected it to the American interior, the efforts of the “OPEC Plus” countries to stimulate domestic investments and attract international investments to the oil sector calls for a corresponding increase in the expected returns of investment in this sector Of course, these returns will not rise in light of cheap or even declining oil prices, and the deterioration of productivity in the activities of the oil sector in many countries of the “OPEC Plus” bloc with the increase in the bill for replacement, renewal and maintenance operations, all of this has negatively affected the oil sector. their actual oil supplies in international markets, to the extent that the continuation of oil prices above the $90 per barrel barrier is extremely important for these countries, not only in order to increase their revenues from oil exports, and not only to be able to pay the bill for supporting and maintaining their oil production capabilities, but before all This is in order to achieve the balance and stability that they seek for the market that is most important to their national economies.
Trends Center for Research and Consultation
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