OPEC + countries dropped production and raised oil prices: “Into the hands of Russia”

The sudden decision to reduce production led to a sharp increase in quotations

The decision to voluntarily reduce oil production from May by almost half of the OPEC + members led to a rapid increase in the prices of “black gold”. In just a few hours, Brent quotes exceeded $85.5 per barrel. Since the members of the alliance, like Russia, are going to maintain cut production limits until the end of the year, by December, according to the forecasts of major world investors, the cost of a “barrel” may reach hundreds of dollars.

A significant reduction in the production of raw materials, which OPEC + members announced on the eve of the next meeting of the alliance, turned out to be completely unexpected for the market. Earlier, in informal conversations, Arab oil generals claimed that the decision to reduce production capacity could be made when the barrel quotes fell to $60. There was a threat to this development of events – since the beginning of March, prices on commodity exchanges have fallen by almost 20% – from $88 to $74. However, by the end of last month, the cost of a “barrel” had strengthened to $78, and therefore no one expected sharp steps to reduce production, even before it was voluntary. Apparently, it was precisely because of the unexpectedness of such a step that the market reaction turned out to be very violent. The cost of Brent futures for delivery in June instantly increased by 7% and exceeded $85.5.

The total limitation of production, taking into account the obligations of Russia, promises to be more than 1.65 million barrels per day. The largest share of the sequestration – 500 thousand “barrels” – takes on Saudi Arabia. Our country also reduces production by the same amount. Gabon will have the least – only 8,000 barrels. The final position of the alliance should be formulated following the results of the summit held on April 3-4 in the format of a videoconference. At the time of signing the issue, the OPEC+ Monitoring Committee confirmed the agreement on a voluntary reduction in the production of raw materials, and now this verdict remains to be approved by the ministerial council of the organization.

This decision caused, to put it mildly, an ambiguous reaction in the world. According to the Wall Street Journal, citing a statement by the US National Security Council, the White House does not consider OPEC + plans to cut oil production to be a “good idea”. Americans do not understand why Saudi Arabia, long considered a reliable partner of the West, is beginning to oppose Washington’s energy policy to reduce Moscow’s export earnings, effectively taking the side of the state subjected to sanctions pressure. The current decision of the OPEC + states threatens the United States with an acceleration in inflation and a rise in gasoline prices.

“Obviously, the accession of a number of countries of the alliance to the voluntary reduction in the production of“ black gold ”is in the hands of Russia,” says Sergey Suverov, investment strategist at Arikapital Management Company. “Not all participants in the sanctions pressure are satisfied with the economic claims being developed in the United States against our country.” In particular, according to foreign publications, Japan recently got the United States to exclude its importers from the price “ceiling” agreed upon by the G7 for Russian oil at $60 per barrel, motivating its demand by the need for access to our energy resources. In turn, Middle Eastern producers are interested in stabilizing the market in order to justify the growing costs of their own budgets – Moscow’s interests are the tenth thing for them.

Meanwhile, most Western investors are confident that the price of a barrel will continue to rise. According to analysts at Bank of America, any unexpected change in the terms of the supply of raw materials by 1 million barrels per day can throw up oil prices by $20-25. As a result, according to analysts at Goldman Sachs and Australia and New Zealand Banking Group, there is a strong possibility that the barrel will break through the $100 level by the end of this year.

Meanwhile, a significant increase in the quotations of “black gold” has not yet provided serious support to the Russian currency. Moreover, after the announcement of the decision to reduce OPEC+ production, the dollar exchange rate on domestic exchanges exceeded 78 rubles, and the euro – 85 rubles. This was the highest value of major reserve currencies since April 2022.