2023-06-04 23:05:15
The law of the strongest was imposed this weekend in Vienna, although only partially. Saudi Arabia, de facto leader and in figures of the Organization of the Petroleum Exporting Countries (OPEC), failed to convince its partners at their meeting this weekend that the cartel adopt more severe adjustment measures in its production quotas to raise the price of crude oil, so he opted for a unilateral action, but one that could end up affecting the entire market like dominoes. Specifically, as of July 1, it will stop extracting one million barrels per day (bpd) of the so-called black gold compared to its usual quota.
In practice, this means that the Kingdom will reduce its daily supply from ten to nine million barrels of crude, which represents an adjustment of 10% in its production quota and 1% with respect to world supply, according to expert estimates. . “It is a Saudi lollipop,” his own Energy Minister, Prince Abdulaziz, acknowledged this Sunday to the media. “We wanted to put ice on the cake. We always want to add suspense. We don’t want people trying to predict what we do… This market needs stabilization,” he added.
For Saudi Arabia, “stabilize” in this case is equivalent to raising the prices of black gold, at least above the level of $80 per barrel to try to stabilize its finances. But his fellow travelers, still largely sharing the message, believe that taking such drastic action could backfire and even end up causing reduced demand in the market. For this reason, the OPEC ministers as a block chose to extend until the end of 2024 -that is, one more year- the production cut that they have kept in force since last April and that they already partly anticipated in October 2022.
Moscow supports the bloc
Russia will also join that measure, “prolonging its voluntary cuts of 500,000 barrels.” Likewise, the main oil producers in the world -the bloc’s partners, together with Russia, pump around 40% of the world’s crude oil- agreed to the internal distribution of their pumping quota as of January 1 of next year, which will leave in 40.46 million barrels per day (mbd) the total supply of the cartel.
In any case, the objective of the group of the 23 largest crude oil producers -included in the so-called OPEC+- is to boost the prices of black gold. With this, they seek to offset the risk derived from a possible drop in demand in China, which in recent months has shown signs of economic weakness with indicators such as manufacturing activity well below expectations.
However, the oil bill has shown these months that the decisions of the oil cartel are not enough to determine its price. What’s more, the law of the market and the fear of a drop in demand due to the economic slowdown have prevailed in the face of the latest pumping adjustments launched by OPEC+, with the price of a barrel of Brent -a reference in Europe- orbiting in around 70 dollars, far from the 100 dollars that analysts anticipated a little over half a year ago.
below 80 dollars
Last Friday the barrel had recovered 76 dollars. Even so, that price implies 12% less than the one it marked at the beginning of April, when OPEC announced its last production cut, by one million barrels per day. And it is even further, 21% less, than the 96 dollars that was around before an even bigger cut was announced last October, of two million barrels per day. This adjustment, the largest undertaken by the cartel since 2020, surprised the market much more, which had anticipated that the cut would be between one and 1.5 million fewer barrels.
Thus, the prices are still very far from the expectations of the producing countries, whose public accounts depend, and a lot, on the evolution of crude oil. Therefore, it is not surprising that the members of OPEC are much more satisfied with the prices of last summer, when the barrel of crude oil easily exceeded 100 dollars.
The fact that oil prices have given the market a lull also has its positive side. Specifically, for the central banks, since the fall in energy prices reduces inflationary pressure, supporting the fight of the monetary organizations against the rise in prices. In this sense, the situation is also more favorable for consumers, who see how the price drop in the markets where this raw material is traded should be transferred more intensely to variables such as fuels. And, therefore, also to the shopping cart.
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