Last week, OPEC+ said that would cut its oil production target by 2 million of barrels per day, with real reductions of between 1 and 1.1 million bpd. The news caused an increase in costs. By the end of the week, recession concerns had caused the subsequent rally in oil prices to fizzle out. Furthermore, these concerns may mask how the oil industry is morphing into scarcity.
Cartel officials said they had decided to cut production because they expected demand to fall and because they wanted to keep some capacity available in case there was an unforeseen interruption in production, as if Russia had one after the embargo took effect. EU at the end of the year.
The United States made it clear that it saw political motivations behind Riyadh’s decision to limit output – one of three OPEC members to do so – and a show of support for Russia.
However, the denial seems to have surprised Washington, since the president Biden has threatened unspecified “consequences” for the decision. The latter is what Riyadh had already done six years earlier, by creating OPEC+.
As the White House considers its options, the oil market may be strained due to OPEC+ action, according to some analysts. Oil markets appear to be dominated by economic concerns, but OPEC has sounded the alarm over a possible oil shortage, with Saudi Arabia in particular sounding the alarm at the head of its energy minister.
The fact that it is difficult to stop the decline in oil supply around the world is more terrible news. This week, Archyde.com’ John Kemp wrote that US stockpiles have fallen to their lowest level for this time of year since 2004, a drop of 480 million barrels over the previous two years.
The fuel stock issue is of particular concern, with distillate stocks in Europe at their lowest level since 2002 and those in the United States at their lowest level since records began in 1982. in Singapore they are also at their lowest level in recent years, with a drop of 9 million barrels in the last two years.
The loss of distillate stocks may be even more worrisome than the drop in crude oil stocks, since diesel, made from distillates, is used in freight transport, an absolutely crucial part of any economy. When reserves are depleted, prices rise, and higher prices contribute significantly to inflation.
Despite the precarious situation of world oil and distillate reserves, Saudi Arabia declared this week that the decision to cut production was purely economic. In reaction to the US accusations, the Saudi Foreign Ministry issued the following statement:
All economic calculations suggest that delaying the OPEC+ decision for a month would have had adverse economic implications, and the Kingdom has made this point clear in its ongoing discussions with the US government.
Regardless of the reasons for the decision, it has been made, and those who disagree with it have little recourse to retaliate. Oil prices remain somewhat low, even though analysts have updated their price forecasts for the fourth quarter in light of the OPEC+ decision.
Once again, recession fears have been fueled in large part by a continuing series of gloomy forecasts, the most recent of which came from the IMF this week. The outlook for the world economy and energy prices is not promising for the foreseeable future. However, if the supply of oil is reduced, especially if a price ceiling and an oil embargo are applied, the situation could change.