On Monday, oil prices soared in response to the Opec+ oil network’s cut in production. A barrel (159 liters) of North Sea Brent for delivery in June last cost 84.02 US dollars. That was $4.13 more than Friday. The price of a barrel of American West Texas Intermediate (WTI) for delivery in May also rose sharply by $4.07 to $79.74.
Last night, a barrel of crude oil from the North Sea was at times worth $86.44. This is a premium of more than eight percent compared to Friday evening. Also for crude oil from the USA it went up about eight percent at times, which corresponds to the strongest increase in the course of a trading day in more than a year. The reason: the oil alliance Opec+ surprisingly announced at the weekend that it would cut its oil production.
With the drastic rise in oil prices, inflation and interest rate worries are returning to the tax office. Rising energy prices have been a key driver of inflation in recent months. With persistently high inflation, the pressure on the Fed remains high to further increase interest rates despite the increasing risks in the banking and financial sector. In the short term, the cut in subsidies will mean higher profits for the Opec+ countries, but the risks on the financial market itself will increase as a result of the cut in subsidy.
Saudi Arabia and the Emirates will throttle production from May
Eight countries, led by Saudi Arabia, Iraq, the United Arab Emirates and Kuwait, want to throttle their oil from May. In addition, Moscow announced that it would not let its existing restrictive subsidy policy expire in June as planned, but would continue it from July.
Since the price of oil is calculated in dollars, the US dollar also initially appreciated. The USA produces crude oil itself and is therefore less dependent than the euro zone on Opec+ decisions. The US is now a net exporter of energy. In the USA, the burden on the economy should therefore be less.
Funding cuts without warning
From May onwards, the production volume of the members of the OPEC oil cartel organized in OPEC+ and other important oil states such as Russia around a million barrels a day lower. Saudi Arabia led the oil alliance on Sunday with a planned production cut of 500,000 barrels a day. Other Opec members such as Kuwait, the United Arab Emirates and Algeria followed suit, while Russia plans to maintain its previous production cut until the end of 2023.
On the oil market, traders had assumed that the Opec+ states would keep their output stable due to a slowdown in the economy as a result of rising key interest rates. Until the announced throttling at the weekend, there had been no indications from representatives of the oil association that would have indicated a change in production policy.
OPEC is the organization of the petroleum exporting countries. A number of leading oil producers have joined forces in it. Members are: Saudi Arabia, Iraq, Iran, United Arab Emirates, Kuwait, Nigeria, Venezuela, Angola, Algeria, Libya, Republic of the Congo, Gabon and Equatorial Guinea. Because the world market share of the OPEC countries has steadily decreased in recent years, the organization is increasingly relying on cooperation with non-OPEC countries such as Russia, Kazakhstan, Mexico and Oman. This enlarged group of producing countries is known as Opec+.