There’s nothing like helping your friends and, incidentally, filling your pockets a little. This is how the decision last Sunday of the cartel of the oil-exporting countries (with its allies led by Russia, OPEC) is summed up, whose pulse has not trembled when it came to choosing by surprise to turn off the oil tap. If the –voluntary– decisions of the different countries are added, we arrive at a snip of 1.6 million barrels per day (assuming that all comply).
The first consequence has been the rise in prices, which appreciated almost 7% yesterday (the highest daily rise in the last year), to later calm down at 84 dollars. Several analysts are now predicting a hot summer in the market, with prices that could climb to $100, which could revive inflation.
But why take oil off the market right now, when prices are soaring in Western economies and with the threat of a slowdown in the global economy, caught between financial turmoil and the rising cycle of interest rates… and above by surprise? The answer to this question is based on two factors. One is cheap. In the last year, Brent oil prices have fallen by more than 20%. A collapse that has taken place even after the last official cut, dated October 5, which was double the amount announced on Sunday: two million barrels per day.
Therefore –reason the states that export black gold–, it is necessary to cut even more, because it is difficult for prices to rise (last summer they were at 130 dollars and last weekend at 80). Another previous question must be answered: Why have prices fallen so much? Because with the new monetary policy cycle and high inflation, global demand had weakened. “The cartel now is not too concerned about what is happening in the West. It is more focused on Asia, its main market, where inflation is also lower. And China, the world’s largest consumer, has started up again after the covid hits, â€explains Jorge León, vice president of the consultancy Rystad Energy.
The other reason is more geopolitical and unrelated to the situation. With this cut, OPEC also lends a hand to its Russian ally, which is facing financial difficulties (in the last year its oil revenues have fallen by 42%), hit by sanctions for the war in Ukraine and forced to sell its oil in Asian markets at discount prices. “Yesterday’s decision to make voluntary cuts demonstrates the cartel’s solidarity with Russia in light of the price cap,” the Esai Energy consultants explained in a note.
Obviously, the US has been annoyed by the cut. “It is not recommended given the uncertainty of the market,” said a White House spokesman. “It is urgent to stop depending on fossil fuels because those who control them play with it,” complained, in turn, the European Commissioner Thierry Breton. Emblematic has been the response of the Kremlin spokesman, Dimitri Peskov: “Whether the other countries are happy or less is their business.”
However, there also remains the possibility that in the long term OPEC’s move ends up being a shot in its own foot. “The cut is a clear admission of weakness and not strength. The cyclical outlook points to a moderation in oil demand in the Western world, as well as in China, since the structural backdrop of the energy transition, with the move to electric mobility, will end up eroding demandâ€, warn the Julius Baer analysts in a note.
