OPEC+'s Warning Shot - WSJ

  

Category:  News & Politics

Via:  vic-eldred  •  3 weeks ago  •  4 comments

By:   Rochelle Toplensky (WSJ)

OPEC+'s Warning Shot  - WSJ
Oil producer cartel cuts output targets just days after U.S.-led agreement to establish buyer's alliance seeking price-setting power over Russian crude

S E E D E D   C O N T E N T



Russia is using natural gas to punish Europe. Oil hasn't yet been similarly weaponized, but talk of buyers imposing a price cap raises the risk that it could be.

The Organization of the Petroleum Exporting Countries and Moscow-led allies decided on Monday to reduce its output by 100,000 barrels a day starting in October. Since Russia's invasion of Ukraine, the cartel, and Saudi Arabia in particular, had been at pains to maintain a broadly neutral stance between its key partners in Moscow and the West. Monday's decision, which flies in the face of U.S. demands for higher output, might just be a response to uncertain global oil demand, but there is also a more unsettling interpretation: OPEC could be sending a warning shot that Western efforts to cap Russian crude prices will be met with retaliation if they threaten the cartel's price-setting power.

Moscow has weaponized its pipeline gas supplies to Europe: Its latest step—stopping flows down the key NordStream pipeline indefinitely—sent European benchmark prices soaring on Monday. So far, oil has been relatively immune from such theatrics. More easily shipped than gas, global crude supply lines have mostly just shifted in response to Western sanctions over the Ukrainian war. More Russian oil now flows to India and China, while Europe buys more from Africa and the U.S.

This uneasy truce might not last. The Group of Seven Western countries on Friday announced a plan to introduce a price cap on Russian oil. If successfully implemented, the agreement could create a buyers’ alliance with some power over global crude prices. That could be seen as a serious challenge to OPEC’s ability to set global oil prices and prompt retaliation.

So far, the G-7 agreement seems more of a political signal than a substantive change. Russian oil has been selling at a substantial discount to the global benchmark for months. The proposed price cap will primarily be enforced through limits on the Western companies that currently insure or finance crude shipments, but that business can be shifted to non-Western suppliers over time. To have any significant lasting effect, India and China would need to come on board, which seems unlikely.

There also are other reasons for OPEC to consider supply cuts. Oil prices have fallen 25% in the past three months, and could fall further if the European economy continues to cool, China has new Covid-related lockdowns or an Iran agreement adds to global oil supplies. And Monday’s cut might not change much in physical supply as the cartel is already producing about 3 million barrels a day less than its stated quota.

A supply cut still seems provocative when the oil price remains high: The global Brent benchmark rose roughly 4% to just shy of $97 a barrel Monday. OPEC has shown remarkable cohesion since its  near-death experience  in 2020. Its decision to cut output just weeks after President  Joe Biden  traveled to Saudi Arabia seeking production increases sends a political signal. This year has brought inflation, strikes and a European energy crunch reminiscent of the 1970s. There are hints of an oil market flashback too.


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Vic Eldred
Professor Principal
1  seeder  Vic Eldred    3 weeks ago

Joe Biden begged them for oil. This is the response.

Two lessons:

1) Don't punish domestic energy producers to appease green energy fanatics.

2) America's enemies will not help America.

 
 
 
Nerm_L
Professor Principal
2  Nerm_L    3 weeks ago

Hold on one cotton-pickin' minute.  Wasn't Joe Biden the one that weaponized economics?  Wasn't Joe Biden the one that rallied the neo-liberal world order to fight Russia with sanctions, trade embargoes, currency manipulation, and financial isolation?

Joe Biden turned the regional conflict in Ukraine into a global economic war.  And that global economic war is being fought with banking and commodities as weapons of war.  It's a little late to discover that Russia has the capability to fight back in the global economic war that Joe Biden wanted.  

Obviously Joe Biden thought money and finance was the most potent weapon which is consistent with the neo-liberal worldview.  But Biden also obviously underestimated the importance of commodities as a potent weapon.  What we're seeing is that the neo-liberal world order depends on the power of money but the real world depends upon commodities. 

So, who is going to win Biden's global economic war?  Banking or commodities?  

 
 
 
Vic Eldred
Professor Principal
2.1  seeder  Vic Eldred  replied to  Nerm_L @2    3 weeks ago
So, who is going to win Biden's global economic war?

Thus far:

"The Russian ruble has rebounded from crippling economic sanctions imposed on Moscow following the invasion of Ukraine and is now at its strongest in more than seven years — earning it the distinction of being the best-performing currency in the world so far this year."

 
 
 
Nerm_L
Professor Principal
2.1.1  Nerm_L  replied to  Vic Eldred @2.1    3 weeks ago
Thus far: "The Russian ruble has rebounded from crippling economic sanctions imposed on Moscow following the invasion of Ukraine and is now at its strongest in more than seven years — earning it the distinction of being the best-performing currency in the world so far this year."

Yep, that's the power of commodities.  Productive economies can fight back against service economies in a global economic war.

 
 

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