As was expected, OPEC+ agreed to cut oil production by 2 million barrels a day at its last meeting. Such a decision had been projected to the markets well in advance if oil prices fell below $90 a barrel.
The production cut angered oil-consuming countries without them giving convincing reasons, especially since there is a surplus in supply caused by the slowdown in growth in several of the large consuming nations. And which required OPEC+ to reduce its output to maintain fair prices consistent with the high inflation rates in the world.
Several statements have been made by Western officials, some of which are unjustifiably harsh because the issue does not require all these interpretations of a political nature. Above all, the issue is purely commercial related to preserving oil producers’ economic interests in light of the state of the world economy, which is worsening as a result of many factors - some of which contributed by developed countries.
Wrong arguments on inflation
Why is this issue considered commercial in terms of its dimensions? The world is witnessing unprecedented inflation, exceeding 10 per cent in some of European countries, from where oil-producing countries import many goods and services. There has seen a significant rise in prices of imported European goods, such as cars, machinery, foodstuffs and others. In tandem, prices of goods imported from the rest of the world have also risen, leading to an ‘imported inflation.
This eventually contributed to the rise in prices in oil-producing countries, including the GCC states though inflation rates are much lower thanks in part to the lower energy prices.
So, by what logic and on which trade considerations should imports of oil-producing countries rise significantly, while they are required to increase production to reduce prices of their exports? This does not comply with the most basic trade standards, as this will lead to the transmission of the crisis to the oil-exporting countries due to their high trade deficits and the possibility of a rise in their annual state deficits.
These factors will affect their economic conditions and lead to an increase in inflation. In fact, a portion of oil revenues are re-pumped to consuming countries through higher export prices to oil-producing countries.
Saudi oil minister says it right
The issue here is mainly related to interests as Saudi Energy Minister Prince Abdulaziz bin Salman, "We are concerned first and foremost with the interests of the Kingdom of Saudi Arabia and then the interests of the countries that trusted us.”
Logically, how one can defend his own interests and ask others not to do so? This is with knowledge that high inflation rates in the West are not only related to energy prices, but also to other factors related to the aftermaths of the COVID-19 pandemic and some improper policies related to delays in raising interest rates.
The fact is the global oil market does not suffer from a shortage of supplies, but from a structural imbalance, as pointed out by UAE Energy Minister Suhail Al Mazrouei: "Europe suffers from the issue of energy security not energy poverty.”
The attempt to link energy issues to the Russian-Ukrainian crisis is useless and far from the truth. Except for Russia, all OPEC+ member states are not a party to this escalating crisis, and this war has mainly led to a rise in the prices of natural gas at rates greater than in oil prices, which applies to coal prices as well.
On the other hand, consuming countries are trying to maintain the previous base price of a barrel of oil, which is more than 15 years old, unaware of the high inflation rates during these years, which technically requires raising the base price commensurate with the high inflation.
This means that the OPEC+ group deals with the developments in the oil market from the technical and group interest perspective, and away from political factors that will not lead to any result.
The oil market is balanced, and OPEC+ is keen on the recovery of the global economy while considering the interests of all parties…