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OPEC+ heavyweights Saudi Arabia and Russia, with their +11 million bpd quotas, are looking at $100 oil as a fair price good for all, anonymous Reuters sources familiar with both Russian and Saudi Arabian government thinking said.
Russia and Saudi Arabia, who together make up more than half of OPEC+'s total quota, are widely considered the leaders of the OPEC+ group, and a $100 preference could lead to an active defense of this desired floor price.
OPEC has long decried the accusation that it targets specific oil prices—rather, as OPEC says, it looks to keep the oil market in balance. However, oil prices still have a role to play in maintaining that balance.
The OPEC+ officials, who wish to remain anonymous, said that OPEC+ has sent out signals that it prefers a price around $90 or $100 per Brent barrel—higher, as Reuters points out, than some in the industry had previously thought.
In the August OPEC+ meeting, when oil prices were near $100 but falling, OPEC+ took action—albeit minor action—to defend this price by cutting 100,000 bpd off its production quota. It wasn't enough to keep Brent prices near $100, but perhaps it has helped to keep Brent prices above $90 for the most part, as it fights against recession fears that seek to spook the market into believing crude oil demand could slump amid tough economic times.
As to why OPEC+ seems to have raised its desired floor price, one of Reuters Saudi sources indicated that materials costs have risen with inflation and that crude producers need more revenue to make up for higher production costs.
"An oil price at $120-130 is risky and Saudi will prevent that, but at $100 it won't have a huge impact on the global economy - Saudi would be comfortable with that price," one of the anonymous sources said.
As for Russia, which has had to offer its oil at discounts for months, it wants to see oil at no less than $100 per barrel, two Reuters sources familiar with Russian thinking said.
With both Saudi Arabia and Russia backing the $100 oil horse, it could only be a matter of time before OPEC+ agrees to actively defend this price level by cutting production.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.
Members of OPEC+ might eventually need a Brent crude price approaching $110-$115 to compensate for rising costs of production as a result of rampant inflation in the major economies of the world.
Whilst Russia can balance its budget with a Brent crude of $40 or less, a price of $100 will give it extra export revenues and will also enable it to offer price discounts to major buyers when necessary.
And with Russia and Saudi Arabia supporting a price of $100, OPEC+ will soon take the necessary measures to defend such a price. Therefore, we could expect oil prices to resume their surge.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert