/ world today news/ The Americans have long been trying to convince the Saudis to produce more oil in order to lower prices and undermine the Russian budget. But OPEC+ decided otherwise – to reduce production. Now that Brent has skyrocketed and is approaching $100 per barrel, the market expects a deficit. And in Washington, they are preparing for a jump in inflation and a rise in fuel prices, which is completely out of place before the presidential elections. Washington obviously did not expect such a surprise from Riyadh.
A complete surprise
Citing the unpredictability of the commodity market, several OPEC+ countries cut oil production. In particular, Moscow and Riyadh – with 500,000 barrels per day. The total cut, which was also announced by Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, Oman and Gabon, was 1.66 million barrels per day.
“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 production level in February, determined in accordance with independent sources,” said Energy Minister Alexander Novak.
This was 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 taken unplanned and not according to the market supply and demand analysis schedule.
Against this background, oil prices immediately rushed up. Brent rose in price at the fastest pace in a year, reaching $87 per barrel.
Impending deficit
Thus, only Russia and Saudi Arabia will remove an additional million barrels per day from the market. And this despite predicting a strong increase in demand for black gold due to the full opening of the Chinese economy after the covid restrictions. According to the analytical company “Wood Mackenzie”, the world demand for oil will increase by 2.6 million barrels per day, China will absorb a million of them.
Combined with two million production cuts since last November, the new OPEC+ decision affects three percent of global demand. The cumulative decline will eventually reach 3.66 million barrels per day.
The maneuver of OPEC+ will lead to a significant deficit of oil in the second half of the year, market tension and rising prices of raw materials, analysts are sure.
According to Goldman Sachs, North Sea Brent will reach $95 per barrel by December. “OPEC+ has very strong price power. The unexpected reduction is in line with their new doctrine of pre-emptive action,” the bank’s experts said.
“OPEC+ wants above all to keep prices at a level acceptable to the producing countries. Therefore, $85-90 in the next few months is realistic,” says Oleg Zhuravlev, technology analyst in the oil and gas industry.
ANDinflation and gasoline
The US is extremely unhappy. “OPEC+’s decision is unfortunate. As far as quotes go, I’m still not sure,” Treasury Secretary Janet Yellen said.
He has a lot to regret. In the countries of the West and overseas, the acceleration of inflation and the increase in the price of gasoline will continue. U.S. gas will add 26 cents a gallon. By summer it will be four dollars.
Last year, US inflation accelerated to 9.1%, the highest level in 41 years. In 2023 has slowed but is still far from the target level.
Analysts predict further unwinding of the inflationary spiral. It is possible that the White House will again use the strategic oil reserve, which now contains 382 million barrels. However, as practice shows, Washington has not been able to bring down the quotations by throwing part of its reserves on the market.
“Brent is able to rise to the psychologically important level of $100, which, of course, will affect the already high inflation. A stagflation situation is possible in the American economy,” says analyst Yevgeny Shatov.
All this is very unfavorable for the Democratic Party, especially since it is happening on the eve of the presidential election in the fall of 2024.
“Gasoline and diesel will become more expensive both in the US and in the EU. Energy crises will explode with new force, driving inflation. The traditional scenario follows: rising prices of everything, mass protests and strikes, political battles,” says economist Leonid Khazanov.
Don’t caught
Saudi Arabia stressed that the OPEC+ decision was based solely on economic considerations. However, it is clear that the cartel acts in its own interests, which are far from being determined by market factors alone.
It is now easier for Russia to fill the budget. This, of course, does not sit well with Washington. The Americans have repeatedly tried to “reason” the Saudis.
As Shatov recalls, the US and Saudi Arabia have signed a framework investment trade agreement. Riyadh has traditionally been Washington’s main ally in the Middle East, one of the most powerful export markets in the region, and also a major creditor.
However, Middle Eastern producers of black gold have clearly sided with Russia. They no longer comply with the opinion of the Americans, writes the Japanese economic publication “Nihon Keizai”, but cooperate with Moscow to maintain the stability of the market.
But relations between Riyadh and Washington have soured. In October 2022 Joe Biden has already blamed the Saudis and Russia for high gas prices in the US. He was persuading Saudi Prince Mohammed bin Salman Al Saud to make a secret deal to increase production. The plan failed and production was cut by two million barrels per day.
Now, the Saudis have once again demonstrated to the Americans that they have their own policy – and they must comply with it.
“Seeing how the USA and the European Union behave towards Russia, the Middle East decided to play its game. On the one hand, it is profitable for Arab suppliers to occupy the niches of Russian competitors in the European market, but on the other hand, it makes no sense to supply black gold to low prices,” says Khazanov.
Having strengthened their presence in the European market, Russia’s Middle Eastern partners seem to have agreed to support Moscow and prevent the collapse of quotations, the analyst emphasizes. So they played an elegant and powerful gambit that will shock Washington and Brussels for a long time to come.
Translation: V. Sergeev
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