Low oil supply from OPEC countries could increase prices, help Russia

Russia is doing the same, extending the supply cut deadline by the end of the year. In theory, a decrease in oil flows into the refinery would mean higher fuel prices and could increase inflation in the US and Europe. And this could also help Russia ease the effect of Western sanctions regarding aggression against Ukraine.

The oil producers' decision, many of them OPEC members, to lower production by more than 1 million barrels a day comes as standard prices of international crude oil fell amid a slow global economy that needs less travel and industry fuel.

This cut adds 2 million barrels a day announced in October. Both cuts make up about 3% of the world's oil supply.

P SE THE PROPHECTIONS ARE WISE E NAFTA?

Saudi Arabia, the main member of the OPEC, said on Sunday that the move is “preventing” to avoid a deeper drop in oil prices.

Saudi Energy Minister Abdulaziz bin Salman has repeatedly had a careful approach to the anticipated supply demand and has favoured being active in adapting the offer before a possible drop in oil needs.

Oil prices dropped from the highest levels of over $120 per barrel last summer to $73 last month. Prices rose after Sunday's announcement, at around $85 on Monday, rising by 6%.

Fearing a US recession, deepened by bank bankruptcy, lack of European economic growth, and the fact that China's recovery from COVID-19 is lasting longer than expected, oil producers are afraid of a sudden drop in prices such as during the pandemic and the global financial crisis in 2008-09.

“was a surprise to all, I think, observers and market analysts,” he said. “The speed, time and size of this movement were all significant”, says capital market analyst Mohammed Ali Yasin, stressing that a reduction is expected at the June 4th OPEC meeting and that the fact that the decision was now taken underlined the urgency felt by producers.

The goal now is to avoid a continuing drop in the oil price “at levels below $70 per barrel, which would be a very negative “” for production economies, Mr Yasin said.

A WHICH INFLACION THE PROJECTION?

The odds are huge. Analysts say bids and demand are relatively well balanced, which means production cuts can increase prices in the coming months.

Refiners that turn crude oil into fuel and oil for cars and planes are preparing for the increase in wine production to meet annual growth in travel demand.

In the United States, fuel prices depend heavily on crude oil, which accounts for about half the price for gallons. Lowest oil prices have caused the average price for American consumers to drop from that record of over $5 per gallons in mid-2022 to $3.50 this week.

The cuts, if fully implemented, “will further exercise pressure on a highly tight oil market,” said Jorge Leon, vice president at Rystad Energy, in an analysis. The reduction could increase oil prices by about $10 per barrel and bring the standard international price to about $110 per barrel this summer.

These higher prices could spur global inflation in such a cycle to force central banks to continue to increase interest rates, which shrink economic growth, he said.

In view of fears for the overall economy, <x0market can interpret cuts like a no-confidence vote in oil demand recovery and may even bring a declining price risk, but this will only be about the short term”, argues Mr. Leon.

WHAT IT WILL MEANS THIS RUSSIA?

Moscow says it will extend the deadline of 500,000 barrels per day for the rest of the year. It needs oil revenues to support its economy and the state budget hit by broad sanctions from the US, the European Union and other Ukrainian allies.

However, analysts think that the cut on Russia's part may just be an act to mask the reduced demand for its oil. The West was avoiding Russian religion even before sanctions were imposed, and Moscow changed most of its destination to India, China and Turkey.

But the Seventh Group set a $60 barrel ceiling for Russian shipments. Russia is selling oil for cheaper prices, which has reduced its revenues earlier this year.

WHAT DOES THE FATHER DO?

President Joe Biden spoke of reducing supply from OPEC+ countries Monday before returning to the White House from a trip to Minnesota, saying: “will not be as bad as you think. ”

Earlier, White House National Security Council spokesman John Kirby voiced American opposition to movement, saying: “We don't think production cuts are advisable at this moment given market uncertainty. ”

But he insisted that the state of the oil market is very different from last year when prices rose after Ukraine's Russian aggression.

“We are focused on prices, we are not focused on the number of barrels,” he told reporters Monday, adding that the US was informed before the announcement.

The White House response was milder than in October, when the cuts came on the eve of the US Congress elections, in which rising gas prices was a key issue. Biden pledged at the time that there would be “consequences”, and democrat lawmakers demanded freezing co-operation with Saudis.

Caroline Bain, senior economist at Capital Economics, said the cut shows the group's “support for Russia and poses a challenge to the Biden administration's efforts to lower oil prices. ”