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Investing.com – A sudden production cut by OPEC and its allies sent oil prices higher, changing expectations for prices ahead.
Meanwhile, analysts say major oil importers such as India, Japan and South Korea will feel the most pain if prices reach 100 per barrel.
And OPEC + announced, on Sunday, a production cut of 1.16 million barrels per day, in a move that the oil markets were not expecting.
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A tax on every economy
“The Saudi-led OPEC decision is a new tax on every oil-importing economy,” said Pavel Molchanov, managing director of Raymond James Private Investment Bank.
“It is not only the United States that will feel the most pain from $100 oil, but also the countries that do not have domestic petroleum resources: Japan, India, Germany, France… to name a few.”
Voluntary cuts by countries in the oil cartel are set to begin in May and continue until the end of 2023. Saudi Arabia and Russia will each cut oil production by 500,000 barrels per day until the end of this year, while other OPEC members such as Kuwait, Oman, Iraq, Algeria and Kazakhstan will cut. production too.
Countries that depend heavily on oil imports
“The regions most affected by the reduction in oil supplies and the related jump in crude prices are those that depend on imports to a high degree,” said Henning Glustein, director of the Eurasia Group.
India
India is the world’s third largest oil consumer, and has been buying Russian oil at a deep discount since sanctions were imposed on Russia in response to its invasion of Ukraine.
According to government data, India’s imports increased by 8.5% in February compared to the same period last year.
“Although they still benefit from discounted Russian gas, they are already being hit by higher coal and gas prices,” Gloystein said.
“If oil rises further, even discounted Russian crude will start to hurt India’s growth.”
Japan
Oil is Japan’s most important source of energy, accounting for about 40% of the total energy supply.
“With no noticeable domestic production, Japan is highly dependent on crude oil imports, with between 80% and 90% coming from the Middle East,” the IEA said.
South Korea
Similarly for South Korea, oil makes up the bulk of its energy needs, according to the independent research firm Enerdata.
“South Korea and Italy are more than 75% dependent on imported oil,” Molchanov noted.
Europe and China are also “extremely vulnerable”, according to Glostein.
However, he added that China’s exposure was slightly lower due to domestic oil production, while Europe as a whole relies primarily on nuclear power, coal and natural gas rather than fossil fuels in its primary energy mix.
impact on emerging economies
Molchanov said that some emerging markets that “do not have the capacity to provide foreign currency to support these fuel imports” will be negatively affected by the $100 price. He pointed to the countries of Argentina, Turkey, South Africa and Pakistan, expecting them to be affected by the high prices.
He said Sri Lanka, which does not produce oil domestically and is 100% dependent on imports, is also vulnerable to a harder hit.
$100 a barrel will not be permanent
However, while $100 a barrel may be on the horizon, prices may not remain at these levels, Molchanov said.
“Once crude reaches $100 a barrel and stays there for a bit, that stimulates producers to increase production again, which puts prices down again,” Gloystein said.
