Oil prices have risen over the past week. Brent prices have been trading above the $100 mark for most of the last five days. This spike could be due to a recent statement by Saudi Arabia’s Energy Minister, who said that OPEC+ was prepared to make any cut in production, regardless of the length or amount. The group believes that cutting oil production will stabilize the market.
OPEC+ production cuts will be historic
Russia is likely to benefit from OPEC+ production cuts. The country is co-chair of the group, and its economy relies heavily on energy revenues. These revenues are also vital to Russia’s war effort in Ukraine. Meanwhile, the European Union is expected to slap tighter sanctions on Russia by the end of the year. While Russia has never asked for production cuts, the sanctions are holding back its production and investment in new oil infrastructure.
OPEC+ members argue the move is preemptive, and a way to keep oil prices high amid global economic weakness. With global upstream investment at a 25-year low, OPEC members are trying to prop up oil prices.
Russia’s economy is shrinking due to sanctions
Despite a slew of sanctions, Russia’s economy is still growing. Interest rates are lower than they were before the war, and the central bank has even revised up its GDP forecast for this year. But that may not be enough to keep the economy stable. The Russian government has also been allowing companies to keep management and audit data secret.
The sanctions are aimed at the wealthy oligarch class, but the real victims of the economic decline are the Russian middle class. They have been affected by a slew of other problems, such as rising prices of goods. Many economists believe that the damage to Russia’s economy will be long-term.
Libya’s military conflict could choke OPEC+ oil exports
OPEC+ member Libya’s oil exports are threatened by a military conflict between eastern and western factions. Both sides are seeking to gain control of eastern Libya and its oil fields. Oil facilities are located in the eastern city of Benghazi. Haftar’s LNA has taken control of most oil facilities in the east. He also has taken control of the southern oil fields. The NOC, the state-owned oil company, has condemned the militarization of Libya’s energy infrastructure.
Libya has the largest proven oil reserves in Africa. In the 1970s, it produced three million barrels a day. In 2017, its oil represented 0.9% of global oil productions. Since 2011, Libya has been in a state of political instability. Its oil production has fallen from a high of 3.3 million barrels a day to just over 817.3 million barrels a day. However, Libya’s military conflict has already affected oil production in the region and the price of oil around the world.
OPEC+ will meet in person for first time since March 2020
The OPEC+ oil cartel is due to meet in Vienna, Austria, next week to decide on their future output strategy. This is the first time the cartel has met in person since March 2020. The previous meeting was facilitated in a digital format, but COVID-19 restrictions prevented the group from meeting in person. A delegate said that the group is eager to resume meetings in person.
The decision to cut oil output by more than a million barrels per day will be an interesting topic of discussion at the meeting. This group of oil producers, as well as their allied countries like Russia, is taking a difficult decision at a crucial time. With oil prices on the decline and the market volatile, OPEC+ members are considering further measures to curb production.