Opec+ looks more like a minus for Saudi Arabia. The oil cartel is doing nothing to help the Gulf state lift oil prices. Blame the export surge from newcomer Russia.
Sunday’s meeting of the expanded cartel went badly. Opec+ members such as Nigeria and Angola balked at a proposal to cut output quotas for the rest of 2023. That forced Saudi Arabia’s energy minister Prince Abdulaziz bin Salman to propose a Saudi-only 1mn-barrel daily cut for July alone.
He threatened to extend the cut, but bulls had hoped for tougher action. Brent crude prices accordingly rose just 1.5 per cent on Monday. They have slipped 9 per cent to $77 per barrel this year.
Prince Abdulaziz bristles at oil traders’ unwillingness to see the same positive fundamentals he does. Demand should outpace supply for the rest of this year, he says. Most oil strategists agree with him, but they do not run trading desks. The post-lockdown pick-up in Chinese oil demand has been weaker than anticipated.
Meanwhile, cash-strapped Russia is selling as much oil as it can. Since G7 and EU sanctions began Russia’s seaborne crude exports have jumped a fifth, according to Rystad Energy. No wonder some Opec+ members will not play ball with Saudi Arabia.
Russian crude trades $20 below international benchmark prices. Friendly refiners in countries such as India and China happily slurp it up. About 60 per cent of Russian crude lands in both places, says consultancy Bruegel.
Equity investors are avoiding oil stocks. Despite hefty payouts, the shares of majors such as ExxonMobil and BP have gone nowhere for the past year. The MSCI All-country energy index has trailed the broader All-country benchmark since October, well after crude’s value peaked last spring.
Russia needs export income to pay for its war. All things being equal, oil prices will remain rangebound. To be taken seriously, Prince Abdulaziz will have to back up his threat with action at the next Opec+ meeting in November.