The Americans have long tried to persuade the Saudis to produce more oil in order to bring down prices and undermine the Russian budget. But OPEC + decided otherwise – they cut production.
Now Brent has skyrocketed and is approaching $100 per barrel, the market is expecting a deficit. And in Washington, they are preparing for a surge in inflation and rising fuel prices, which is completely inopportune before the presidential election. Washington obviously did not expect such a surprise from Riyadh.
Citing unpredictability in the commodity market, several OPEC+ countries have reduced oil production. In particular, Moscow and Riyadh – by 500,000 barrels per day. The total reduction, which was also announced by Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, Oman and Gabon, is 1.66 million barrels per day.
Headquarters of the Organization of the Petroleum Exporting Countries in Vienna
“As a responsible and preventive action, Russia is implementing a voluntary cut of 500,000 barrels per day until the end of 2023 from the average February production level, determined in accordance with independent sources,” Deputy Prime Minister Alexander Novak said.
This came as a surprise to the market: they believed that the cartel would keep production at the same level. Observers were also surprised by the fact that the decision was made unscheduled, not according to the schedule for analyzing market demand and supply.
Against this background, oil quotes immediately rushed up. Brent rose in price at the fastest pace in a year, soaring to $87 per barrel.
Thus, only Russia and Saudi Arabia will remove an additional million barrels per day from the market. And this despite the fact that they predict a strong increase in demand for black gold due to the full opening of the Chinese economy after covid restrictions. According to Wood Mackenzie, global oil demand will increase by 2.6 million barrels per day, China will take a million of them.
Combined with a two million cut in production since last November, the new OPEC+ decision affects three percent of global demand. The cumulative decline will eventually amount to 3.66 million barrels per day.
The OPEC+ maneuver will lead to a significant oil shortage in the second half of the year, market tension and higher prices for raw materials, analysts are sure.
According to Goldman Sachs forecast, North Sea Brent will reach $95 per barrel by December. “OPEC+ has very strong price power. The unexpected cuts are in line with their new doctrine of being proactive,” the bank’s experts said.
“OPEC+ wants, first of all, to maintain prices at an acceptable level for producing countries. Therefore, $85-90 in the next few months is realistic,” says Oleg Zhuravlev, CEO of WORMHOLES Implementation, a company that develops technologies for the oil and gas industry.
inflation and gasoline
The US is extremely dissatisfied. “The OPEC + decision is regrettable. As for the quotes, I’m not sure yet,” said Treasury Secretary Janet Yellen.
There is something to regret. In the countries of the West and overseas, inflation will continue to accelerate and the price of gasoline will rise. US fuel will add 26 cents per gallon, according to Clearview Energy Partners. By the summer there will be four dollars.
Last year, US inflation accelerated to 9.1 percent, its highest in 41 years. In 2023, it slowed down, but it is still far from the target level.