Saudia Arabia and UAE, the Key to Lower Oil Prices

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In order to determine oil prices and how much oil they might add to the market starting in September, the top oil producers in the world will gather on Wednesday.

Just a few weeks prior, US Vice President Joe Biden visited Saudi Arabia in an effort to personally persuade the nation to increase production in order to help lower the price spike.

The price of living has increased in several nations as a result of crude’s steady trading at more than $100 per barrel since February.

The White House is hoping that the Organization of Petroleum Exporting Countries’ (Opec) 13 core members will opt to increase oil supplies. That is not a guarantee, though.

With the intention of controlling the global oil supply and price, Opec was established as a cartel in 1960.

Saudi Arabia is the cartel’s largest producer, and after meeting with Saudi Crown Prince Mohammed Bin Salman, President Biden stated that he anticipates an increase in supply. Saudi Arabian officials have emphasized that Opec+ would be consulted before any decision to boost supplies is made.

Opec+, a larger group of 23 oil-exporting nations that also includes Russia, meets each month in Vienna to decide how much crude oil will be sold on the international market.

What can cause oil prices to reduce?

In April 2020, Opec+ started a series of cuts that persisted as demand decreased throughout the coronavirus pandemic. Since 2021, it has been gradually reestablishing this depleted supply.

At the group’s most recent meeting, Opec+ voted to slightly raise the number of barrels it produces in August. However, it could be difficult to just switch on the faucets fully. On paper, several cartel members, including Malaysia, Nigeria, and Angola, are already having difficulty meeting their monthly supply goals.

In addition, Russian shipments have decreased as a result of western sanctions. Moscow, on the other hand, has increased its sales to clients in Asia like China and India.

The only two significant participants with some extra capacity are Saudi Arabia, the lynchpin, and its neighbor, the United Arab Emirates. Saudi Arabia’s oil production target for August is 11 million barrels per day, which energy experts believe is a very high level with little room for further increases.

Uncertainty regarding energy demand in the upcoming months may have had a greater impact on the couple’s decision.

Increased interest rates, the conflict in Ukraine, and the impending recession in many western nations might all significantly reduce demand. According to experts, these issues may prevent the group from acting boldly and from increasing their productivity significantly.

Prior to the invasion of Ukraine, Russia was the third-largest oil producer in the world, after the United States and Saudi Arabia. It accounted for 8% to 10% of the world’s oil supply.

According to market analysts, President Vladimir Putin wants to maintain high oil prices in order to continue funding the conflict in the Ukraine and fend off the effects of devastating western economic sanctions.

The Opec+ group’s cohesiveness is extremely important to Saudi Arabia, and it would steer clear of any action that would compromise it.

The Future of Oil

Opec predicts that, albeit at a slower rate than this year, the world’s oil demand will increase in 2023. The progress made in limiting the coronavirus in China, according to its analysts, will play a part in this.

Despite mounting concerns about inflation in several nations and slowing economic growth, estimates from the International Energy Agency and the US Energy Information Administration indicate that oil demand will continue to rise sharply.

Due to capacity issues, a lack of investment in downstream and refining, and other factors, oil producers may find themselves having to pump oil at a faster rate than they have in the previous five years in order to balance supply and demand.

There is a lot of market volatility, but few people anticipate a persistent slide below $100 a barrel, according to Ben Cahill, a senior scholar at the Centre for Strategic and International Studies in Washington.

This year, the price of gasoline in the US has already surpassed a 13-year high.

Since April, the US has been releasing nearly a million barrels per day from its Strategic Petroleum Reserve (SPR), as part of its strategy to add 180 million barrels to the market over a six-month period ending at the end of October.

Opinions expressed by San Francisco Post contributors are their own.

Anthony Carter

I’m Anthony and I finished my degree graduate studies on Public Administration and I spend most of my free time in contributing written works about community development, public administration and lifestyle.

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