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OPEC+: from euphoria to maturity

10 December 2023

Belogoryev Alexey M. Research and Development Director, Director of the Center for Energy strategic analysis and forecasting

The Monocle magazine published an interview with Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, on the current role of OPEC+ in the global oil market and its effectiveness estimates (No. 8 (1324), December 11-17, 2023).

— Alexey, is it possible to state that the OPEC+ mechanism is losing effectiveness in the impact on the market?

— I would not talk about reducing the effectiveness of OPEC+: it is difficult to sail against a strong headwind. When the wind of market sentiment becomes favorable again, as it has happened many times before, the apparent efficiency will increase. And besides, there is no other instrument for regulating the oil market in the world anymore: in the 2010s, it seemed that shale production in the United States had become one, but since then it has lost its flexibility and is increasingly reluctant and slower to respond to price changes.

— But the alliance does not manage to reverse the downward trend of prices in any way.

— Oil prices returned to the state of May‒June 2023, that is, to the range of 70-80 dollars per barrel, with a clear desire to further test its lower limit for stability (in the first half of the year it did not come to this). In my opinion, this price range looks more natural and reasonable than the levels to which the OPEC+ participants are persistently trying to push prices: about $ 90-95 per barrel.

— How beneficial is the existence of OPEC+ and our participation in the club to Russia?

— Russia certainly benefits from further participation in OPEC+. We have already made an attempt to withdraw from this agreement once — in March 2020, and it ended extremely badly for both the oil market and Russia's export revenues. OPEC+ is, in fact, the fulfillment of Russia's long—held dream of influencing global pricing in proportion to its market share of a particular product. Until 2017, Russia, with all its huge contribution to the world trade in oil and petroleum products, had no tool at all to influence the dynamics of oil prices, although Russia itself was heavily dependent and still depends on it.

Saudi Arabia and other Gulf countries also have no option to "not be friends" with Russia. OPEC in its original form has lost its market power, and this organization can only remain effective by cooperating with other oil exporting countries, primarily with Russia as the largest of them.

— Will Brazil's accession to the alliance contribute to the effectiveness of the alliance's functionality?

— Brazil is ready to participate in OPEC+ only as an observer, and clearly does not plan to make any commitments. Apart from the United States, it is the main beneficiary of the reduction of OPEC+ competition for market niches. For both sides, this is a successful political PR, but so far nothing more.

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