Two attempts; Two defeats. That is the balance of the expanded version of the Organization of the Petroleum Exporting Countries (OPEC+) in its recent struggle to keep oil prices high. A month after the cartel put the scissors on its production to stabilize the price, Brent has returned to the starting point: the reference barrel in Europe is exchanged today for 72 dollars, 15% less than it cost before the expanded version of the group, led by the two largest oil exporters in the world – Saudi Arabia and Russia. It announced a cut of 1.1 million barrels per day on its production. It is, in gross numbers, just over 1% of what the world consumes.

The result of this latest attempt to raise prices is exactly the same as that harvested just over half a year ago. At the beginning of October, OPEC+ announced a cut in its production of two million barrels per day, to which the market initially responded with strong increases that were soon neutralized. Both then and now, the main analysis houses glimpsed a quasi-structural imbalance between supply and demand, with the balance tilted on the side of the latter. But the market, stubborn, insisted – and insists – on going against the consensus and the cartel.

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"The gains in the price of oil as a result of the OPEC+ cut have evaporated," says Jorge León, vice president of Rystad Energy and former official of the cartel, who sees two possible explanations: Russian production, which, despite sanctions, does not give truce and the worsening of the global macroeconomic climate. "The fundamentals suggest a price rise as the summer approaches, but the US economic data is not very optimistic and the markets are in waiting mode," he explains. That future rise, however, and barring a surprise of the first order, will be far from the highs of June last year, when Brent exceeded $ 120 per barrel. Especially if the signs of slowdown in the West continue to grow day after day.

"Confidence has fallen that the production cuts announced by OPEC+ will actually take place," said Viktor Katona, head of oil analysis at specialist firm Kpler. "Just look at what happened in Russia: in March, its derivatives exports were the highest ever, and its crude sales were as high as in previous months." Moscow's pledge was to cut half a million barrels as early as last month. Something that, in Katona's opinion and in view of the market dynamics itself, is "quite unlikely" to have occurred. Russia's production data remains a mystery to everyone but the Kremlin.

Despite the recent fall in oil prices and the also recent signs of cooling demand, Moscow – together with Riyadh, who really pull the strings of the cartel – has slipped its conviction that new production cuts would not be necessary. "It's only been a month since we made a decision [to cut supply], which will take effect in May," Alexander Novak, deputy prime minister and Vladimir Putin's former energy strongman, said last week.

OPEC-West clash

In essence, this struggle is nothing more than a struggle between Saudi Arabia and Russia (on one side) and the West (on the other). After several decades in which Riyadh has gone almost constantly hand in hand with Washington in major energy and geopolitical decisions, the dynamics have taken a radical turn in recent times, in which the petromonarchy has broken the deck in its relationship with the world's leading power. In return, Joe Biden's administration has responded to every drop in OPEC supply by releasing barrels from its strategic reserves.

This clash between blocs experienced a new chapter last week, with the International Energy Agency (IEA, the energy think tank par excellence in the Western sphere) and OPEC as protagonists. In broad outlines, the story is written as follows: the secretary general of the IEA asked the cartel for "great caution" in its movements, because higher oil prices weaken global growth and "give an additional boost" to the deployment of electric cars, future – and, increasingly, present – black beast of oil exporters. The response did not wait 24 hours: in very similar terms, the head of OPEC, Haitham Al Ghais, called on the Agency to be "very careful" when discouraging interest in oil exploration and production: "If anything can increase volatility are the repeated calls of the IEA to curb investment in oil."

Less inflation

The fall in the price of crude oil is good news both for final consumers – not only those who have a car benefit: the ups and downs of crude oil are also transferred, sooner or later, to the shopping basket – and for inflation on both sides of the Atlantic. And it adds to another trend that is also reducing pressure on fuel prices: the entry into action of new refineries in the United States and in several countries in the Middle East. A fact that is being felt, above all, in diesel prices, which had most tightened Russian sanctions and those that have fallen the most in recent weeks.

The long term does not exactly row in the direction that OPEC members would like. Last week, the IEA called expected sales of electric cars in 2023 "boom" – although they are still only one in six new registrations – and quantified at five million barrels per day the expected reduction in oil demand in 2030. In other words, by the end of this decade, the electrification of the global fleet will have already taken a cut five times greater than the last cut in the cartel. And that's just the beginning.

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