/ world today news/ The sharp fluctuations in oil prices in the last two months indicate a serious struggle on the main front of the world war – oil. If in September the price of the still reference variety “Brent” was very close to the psychological line of 100 dollars per barrel, today the quotations dance around 80 dollars, sometimes breaking this limit up, sometimes sharply down. The intense swings are a reflection of a number of factors, the key of which are the US attempts to destroy the cartel influence of OPEC+ and the rapidly developing events in the Middle East.
Many analysts were surprised by the behavior of oil prices amid the latest decision by OPEC+ to extend the voluntary reduction of oil production quotas. The actual reduction in production will be small and will amount to about 0.5 million barrels per day for the first quarter of 2024. Against this background, it was expected that prices would at least stabilize and even grow, but it turned out to be just the opposite. Not only did prices not rise, they soon began to fall, falling back below $80 a barrel.
The latest meeting demonstrated the instability of the power of the leaders of the extended cartel – Saudi Arabia and Russia. The rebels were African OPEC+ members Angola and Nigeria, which wanted to increase their own production amid cuts by other participants. Due to the need for further coordination of positions, the OPEC+ meeting, originally scheduled for November 25, had to be postponed by several days. And the overall effect of the extension of the production cut regime proved insufficient to support oil prices.
A number of analysts saw the results of the latest meeting as a weakness of OPEC+, which has exhausted its ability to influence prices. A strange story happened with Brazil, which was supposed to join the organization in 2024. Later it turned out that the announced accession turned out to be, if not false, it contains many “buts”. Brazil has said it is not ready to commit to production cuts and would like to join OPEC+ as an observer, although no such status currently exists in the organization.
Now, however, the key issue is not so much the number of OPEC+ members, but the manageability of the organization. Discord within the expanded cartel will undoubtedly damage its authority. The timing of the attack on the cartel – and there is no doubt that the attack is being launched by the United States – could not have been better chosen. The oil market is in a state of complete uncertainty. It’s been a long time since that happened when the market didn’t understand where it was going to go in the medium term.
Uncertainty reflects sharply increased risks. How long will the EU recession last, when will the economic problems in the US be felt and how large will they be? Will China’s economy be able to support oil demand, or will the accumulated economic imbalances in the Middle East further exacerbate the demand problem? Finally, will the conflict in the Middle East escalate into a regional war that threatens tanker traffic on major oil arteries? Let’s not forget the presidential election in the United States, which will make the country shake as November 2024 approaches.
Amidst this uncertainty, the US has sharply increased oil production, setting an all-time record for levels. At the end of September, the US produced an average of 13.24 million barrels of oil per day. At the right moment, Washington easily forgets about the “green” program, intensively increasing the production of hydrocarbon fuels, which once again speaks of the opportunistic nature of this tool for global competition.
As the largest producer and consumer (along with China) of oil, the United States has the ability to balance meeting domestic demand for oil with the cost of exporting it. The US needs cheap oil here and now. First, inflation (and therefore the US Federal Reserve’s key interest rate) is largely a derivative of the domestic fuel price. And second, low oil prices are a key element of the high-level war with Russia, and at the same time a tool to tame the Gulf monarchies, who have recently shown little respect for the hegemon.
The Russian budget is based on fairly optimistic forecasts for oil prices in 2024. GDP growth (2.3%) and federal budget revenues are largely supported by an average oil price of $71 next year. To many, including the Audit Office, such forecasts seemed overly optimistic. Taking into account the current discounts for the Russian Urals oil variety to Brent (about $10 per barrel), the price of black gold is already below the expected averages for 2024. If this trend continues next year , the budget deficit will inevitably increase.
Given the nature of the war of attrition being waged between Russia and the West, the price of oil has, in a sense, become the center of this confrontation. In this context, the key to Moscow’s success, on the one hand, is the development of the non-oil and gas sector and the expansion of sales markets and logistics. Here, the military-industrial complex, engineering, consumer goods – fortunately, with the withdrawal of Western companies, colossal niches were formed. Substitution of one import with another (Chinese) must come from own production – this issue is already being raised at the level of the Security Council. On the other hand, it is profitable for Russia to do everything possible to strengthen OPEC+. The strategic alliance with the Saudis is bearing fruit and it is important to resist any attempts to destroy it. Vladimir Putin’s visit to Saudi Arabia and the UAE is more than an effective step in this direction.
Translation: V. Sergeev
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