The Organization of the Petroleum Exporting Countries Plus’s (OPEC+) recent decision to cut oil production by two million barrels per day starting this November has stirred up international crude negotiations.
OPEC’s influence on global economic markets is immeasurable, as the group consists of the 23 largest oil-exporting countries and produces around 30% of the world’s crude.
In 2016, when energy prices were particularly low, OPEC joined forces with ten other oil producers to create OPEC+. These additional countries include the United Arab Emirates–the biggest single oil producer within OPEC+, producing more than 10 million barrels a day–and Russia, also yielding 10 million barrels daily.
Together, these nations produce about 40% of the world’s crude oil.
Accordingly, we’ve seen a 30% increase in documents across the AlphaSense platform mentioning OPEC+. And based on our findings, countries around the world are already discussing how they’ll compensate for this drastic cutback, as it will affect nearly every industry and sector.
Below, we pulled key insights from the nations leading these conversations to see how they are reacting to this economic-disrupting information.
Biden Administration’s Response to Oil Cutbacks
While OPEC+’s announcement has sent shockwaves around the world, diplomatic frustration is potentially most apparent in Washington and, more specifically, with President Biden. Some Congress members see OPEC+’s decision as a means to funnel financial support for Russia in the Russia-Ukraine War, as they are reportedly spending $900 million a day to invade Ukraine and heavily depend on revenues from its gas and oil exportations.
However, Saudi Arabia claims their cutbacks are precautionary economic measures for the recession experts are predicting will unfold in the next half year. During the 2008 Financial Crisis, OPEC+ oil prices fell from $100 to eventually $32 per barrel in a matter of months. Significant price shifts not only damage the economies of oil-producing countries but also affect oil fields due to abrupt halts in production.
Regardless of the United Arab Emirates’s justification, Biden is facing an ensuing oil crisis at home as barrel prices have already jumped $10 since OPEC+’s announcement. To tame tensions over escalating gas prices, the President met with Saudi officials this past October to negotiate a delay in OPEC+’s decision, pushing the cutback to take effect in December, more notably, after the US midterm elections. Unable to sway Saudi Arabia, congress is considering taking drastic measures, including freezing all cooperation, halting arms sales for a year, and removing American troops and missile systems from the Kingdom.
In an effort to lower gas prices and compensate for a lack of imported oil, Biden began releasing millions of crude barrels from the nation’s Strategic Petroleum Reserve (SPR) and onto the market this past October–consequently depleting the Reserve’s levels to its lowest since 1984. Historically, Biden’s administration had reservations on authorizing releases from the SPR until this past June, when the President tapped into the reserve and lowered US gasoline prices.
Fifteen million of the 180 million barrels the administration is purchasing from the SPR will also be available to the market in December to continue curbing gas prices, with more to come depending on Russian or other actions disrupting global markets. The Strategic Petroleum Reserve houses roughly 400 million barrels of crude oil in underground facilities within Texas and the Louisiana Gulf Coast.
International Perceptions on the Cutback
While the US has been potentially the most vocal in taking action against Saudi Arabia, nations around the world are discussing the impacts of the OPEC+ cutback.
Within the AlphaSense platform, we’re seeing non-OPEC+ countries (US, Canada, China, UK) and OPEC+ countries (Russia, Saudi Arabia, India) dominate the conversation throughout press releases and company documents.
After scanning thousands of documents, we pulled key insights that give an indication as to how these countries are approaching the matter–whether the cutback is a geopolitical move in support of Russia, a lucrative opportunity to export energy supplies, or ensuing crisis for heavy energy-consuming 4nations.
Canada
Canada, a major oil producer and non-OPEC+ country, views OPEC+’s decision to cut back oil as both lucrative and problematic. With less oil and gas supply emanating from countries top-producing oil countries, like Russia and the United Arab Emirates, higher demand for these supplies will be placed on Canada and other non-OPEC+ countries.
Continuous demands for gas and oil that emerged during the COVID-19 pandemic have positioned Canada for a dependable revenue stream. Even the recent news of OPEC+’s decision has resulted in a lift to QoQ performance for Canadian energy companies. Though, interest rates and global inflation certainly will affect pricing and, therefore, financial gains.
“We expect strong crude oil and natural gas demand to continue, and tight supply in a robust commodity price environment may further drive oilfield services industry activity and rate improvements during the remainder of 2022. While we expect oil and natural gas producers to remain committed to prioritizing shareholder returns, higher oilfield service industry utilization is expected to drive day-rate pricing improvements year-over-year.”
– Ensign Energy Services Inc. News Article
United Kingdom (Great Britain)
The UK believes that Biden’s inability to sway the United Arab Emirates to postpone their cutback this past October was an “embarrassment” on the White House’s part that exemplifies the US’s power, or lack thereof.
And with Biden and Congress’s threat to rollback diplomatic measures within Saudi Arabia, the UK press isn’t so sure they’ll follow through on them. In fact, some UK analysts see economic benefits from the OPEC+ cutback, believing that it has prevented the cost of oil per barrel from dipping below $75.
“We believe that the OPEC+ cuts have significantly reduced the likelihood of any immediate collapse below $75 per barrel, which would have been possible had the cuts been delayed.”
– Standard Chartered PLC