free webpage hit counter

For Opec+ leaders, $100 a barrel oil is a ‘fair’ price – newspaper

LONDON: Saudi Arabia and Russia, the de facto leaders of the OPEC+ oil producer group, see $100 a barrel as a fair price that the global economy can absorb, sources familiar with government thinking in both countries told Reuters.

The Organization of the Petroleum Exporting Countries, Russia and other allies known as OPEC+, pumps more than 40 percent of the 100 million barrels a day of global production. The group has a strong influence on global energy prices through its supply policy.

Opec+ does not specify its preferred price level. Top officials in both Saudi Arabia and Russia have said in recent weeks that the group’s policy focus is on matching global oil supply demand, not protecting a particular price.

“Our focus is straightforward – looking at the balance of supply and demand in not less than a year and more likely a year and a half,” a senior OPEC+ source with knowledge of the matter told Reuters.

“There are too many variables outside of human control, like Covid in 2020 and the financial crisis of 2008, so we have to be humble.” However, one of the most important measures of supply-demand balance is price. When demand threatens to outstrip supply, prices rise and vice versa. Group members’ statements and whether they increase or decrease supply provide a sense of what producers see as a reasonable return for their oil.

Recent signals point to a preferred price for Brent crude at around $90 to $100 a barrel, three government sources and analysts told Reuters.

That’s higher than the $75 level previously perceived by Opec+ observers as the group’s preferred price to see oil trading at $100-$120 for most of the second quarter, alarming governments in many countries already dealing with runaway inflation.

The United States has led Saudi Arabia and other producers to push countries to pump more to cool prices that have been rising for a year.

But top oil producers, including Saudi Arabia, have issued public statements in recent weeks to support prices that have fallen to $90 amid a weak outlook for the global economy and demand.

Those remarks led to a symbolic cut in OPEC+ to its oil production target of 100,000 barrels per day (bpd), which many analysts interpreted as a sign that the group is protecting prices above $90.

A separate source explained Saudi government discussions and another industry source that the price corridor has risen with rising material costs and inflation, which means producers need to generate more revenue from oil to balance their budgets.

“An oil price of $120-130 is dangerous and the Saudis will prevent it, but at $100 it will not have a big impact on the global economy – the Saudis are comfortable with that price,” one of the three sources said.

While most OPEC+ producers depend on oil revenues and have different oil price requirements to balance their budgets, Saudi Arabia and Russia have no official price targets. Saudi officials have not talked openly about price targets or price aspirations for years.

‘Wind to the State’

Coffers of oil nations, including Saudi Arabia, have been depleted by pandemic-induced price declines in 2020. Higher prices are helping to replenish their coffers.

In April the International Monetary Fund estimated Saudi Arabia’s breakeven oil price — the oil price at which it would balance its budget — at $79.20 a barrel. The Saudi government does not disclose its breakeven oil price.

Karen Young, a senior fellow at the Middle East Institute in Washington, said, “Any amount above $100 is fatal to the state.” “I think the comfort level is above $80, but fiscal policy is flexible.” Companies around the world need $100 oil to maintain healthy investment levels to ensure supply keeps up with demand, a source familiar with the Saudi government’s thinking said.

Russian concessions

Oil remains relatively expensive even after falling to $90 per barrel.

Brent bounced back above $90 in February after trading below that level since 2014.

Russia has different intentions for its price comfort zone than Saudi Arabia. This year, Moscow has had to sell its crude to buyers in Asia at a discount to benchmark prices, as Europe and the United States have banned or discouraged Russian oil imports in retaliation for the war in Ukraine.

Russia wants oil at no less than $100 a barrel to offset the concessions, two industry sources familiar with Russian thinking said. Deputy Prime Minister Alexander Novak rejected the idea that there was any price agreement.

“We are not talking about price structure, but about the adequacy of supply in the market, on the one hand there is no surplus, and on the other hand, there is no shortage,” Novak said this month.

OPEC has made sporadic attempts to keep prices at a certain level in the past. In 2000, the group came up with a price band mechanism to keep oil between $22 and $28. After a few years when prices rose above $28, the band was suspended.

Saudi Arabia and OPEC have also favored oil at $100 at various times. Saudi Arabia first endorsed $100 oil in 2012, and in 2018 Saudi officials were saying in private meetings that $80 to $100 oil was desirable, sources said.

Such lofty ambitions have been rendered unrealistic after developments including the US shale oil boom and consequent global oversupply and price collapse, as prices plummeted during the Covid pandemic.

Dawn, Published on September 18, 2022

Leave a Reply

Your email address will not be published.

Previous post Christina Fitzpatrick: Historic win brings drug price relief to Granite State seniors | Op-eds
Next post Indecisive government continues to postpone fuel price review – Business