‘Comfortable’ with $100: Get used to these levels in oil

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Volatility in oil prices again following yesterday’s decision by OPEC+ , which includes Russia, to agree to cut crude oil production by 100,000 barrels per day from October 1, due to forecasts of lower oil demand due to the weakness in the global economy. 

WTI crude rises this Tuesday and moves in the 87 dollars and the Brent falls, at levels of 93 dollars.

“The organization indicated that the production policy will be reviewed monthly in ordinary meetings, although the cartel does not rule out holding extraordinary meetings in the event of any variation in its scenario,” commented Banca March.

“Everything points to the fact that the producers that make up the OPEC+ alliance are not in favor of oil falling much more than it has already done in the last three months,” they say in Link Securities. 

“Reducing their quotas is a movement opposite to that of September, when they voted in favor of increasing them by the same amount”, add these analysts. 

In the opinion of these experts, yesterday’s OPEC+ movement makes two things very clear:

  • That the cartel countries are not willing to put up with pressure to increase their production with the aim of lowering the price of crude oil, neither from the president of the United States, Joe Biden, nor from anyone else.
  • Now that they have recovered part of the power to set prices, lost at the hands of the North American frackers in the last decade, they are not going to allow oil prices to fall much further than their current levels. 
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“Therefore, developed economies will have to live with these prices in the best possible way,” they warn in Link Securities. 

“This cut, the first since 2020, means ending the period of progressive return to the market of the supply that was withdrawn to adapt it to the drop in demand caused by Covid. We recall that last week there were already statements from Saudi Arabia in which a cut in supply was proposed with the aim of balancing a market in which the deterioration of the cycle will weigh on demand (Brent -30% from the annual maximums, already standing at at levels prior to the war in Ukraine), especially from economies such as China or Europe”, they explain for their part in Renta 4 (BME ). 

“Yesterday’s is a sign that OPEC+ is comfortable with a crude oil price of around 100 dollars per barrel and does not allow us to anticipate sharp falls that would contribute to a rapid drop in inflation,” these analysts conclude.

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