On Monday, June 5, world oil prices are steadily growing in international trading. At the beginning of the day, raw materials of the reference Brent brand on the ICE exchange in London rose in price by 2.8% – to $78.23 per barrel, while the cost of the American WTI brand rose by 2.9% – to $73.81 per barrel. According to experts, the main reason for the sharp rise in the cost of raw materials was the actions of the OPEC + alliance. On the eve of the agreement, the countries participating in the agreement agreed on an additional reduction in hydrocarbon production in 2024 by 1.4 million barrels per day. At the same time, a number of states intend to continue voluntary production cuts by another 2.66 million barrels per day. As a result of the initiative, the supply of oil to the global market is expected to decrease, which may lead to an increase in the cost of a barrel.
On the evening of June 4, representatives of the countries participating in the OPEC+ deal agreed to reduce total oil production to 40.46 million barrels per day from January 1 to December 31, 2024. As explained in the Russian government, such a measure was approved to provide long-term benchmarks for the oil market, as well as maintain its stability and create long-term predictability.
Recall that the OPEC + agreement includes 23 oil-producing countries, including Russia. As part of the deal, the states jointly control the production of raw materials to achieve a balance between supply and demand in the global hydrocarbon market. Such a policy should keep the price of oil from significant collapses. Back in October 2022, the parties agreed to reduce the overall level of oil production by 2 million barrels per day by the end of 2023. According to the new agreements, in 2024, the production of raw materials is planned to be reduced by another 1.4 million barrels per day. Moreover, in addition to this official reduction from July 2023, a number of OPEC + member states will voluntarily reduce production by another 2.66 million barrels per day. As part of this initiative, Saudi Arabia and Russia are going to reduce production most of all – by 1.5 million and 500 thousand barrels per day, respectively, and the remaining volumes will be distributed among Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, Oman and Gabon. Thus, taking into account all the decisions made after October 2022, the alliance plans to remove about 6.06 million barrels of oil per day from the market. This, in turn, should be the reason for a new round of growth in world prices, experts say. At the same time, additional support for commodity quotes should be provided by the recovery in demand for fuel in China and the replenishment of strategic reserves in the United States.
“For OPEC+ members, the optimal level is the cost of raw materials in the region of $80 per barrel, since it is on the basis of this value that the budget of most countries of the alliance is drawn up. Further developments will largely depend on the dynamics of global demand for fuel. It is likely that in 2023 prices will fluctuate in the range of $70-90 per barrel. If quotes suddenly go below $70, then OPEC + may well go for another production cut.
Meanwhile, according to experts, today, in opposition to the efforts of OPEC + to increase world oil prices, the actions of the United States play. For more than a year now, the US authorities have been actively releasing raw materials from their strategic reserves and thereby seeking to increase the supply of hydrocarbons on the market. Thus, the United States wants to contain the rise in oil prices in order to stabilize the situation with domestic gasoline prices.
In 2022, after the start of a special military operation in Ukraine, Washington, in an attempt to put pressure on Moscow, decided to completely abandon the purchase of Russian energy resources. As the White House argued at the time, the United States could afford to take such a step thanks to the country’s strong energy infrastructure. However, the actions of the United States led to a sharp increase in world oil prices, and some time later, ordinary Americans faced a record rise in fuel prices at gas stations. Rising prices for automotive fuel have hit the wallets of consumers, who are the electorate, hard. As a result of all these events, the ratings of US President Joe Biden plummeted. To normalize the situation, the American leadership initially turned to the country’s largest oil and gas companies with a request to increase oil production, but was refused. Later, the Biden administration tried to convince the OPEC countries to increase hydrocarbon production, but the members of the organization also did not agree with Washington’s proposal. As a result, the United States began to actively withdraw oil from its strategic reserves and released almost 198 million barrels in just over a year. By now, however, the vaults are more than half empty, and their occupancy has dropped to the lowest level in 40 years.
Against this background, in the near future, the US leadership plans to complete the pumping of oil from reserves and return to the purchase of raw materials to replenish reserves. However, taking into account the actions of OPEC +, such a decision by Washington risks nullifying all previous efforts of the American authorities in the fight against fuel prices, experts say.