ADVERTISEMENT

Business

Gasoline prices: Oil-producing countries cut production target to keep prices high

ADVERTISEMENT

Gasoline prices: Oil-producing countries cut production target to keep prices high
Written by madishthestylebar

the essential
OPEC + decided on Monday, September 5 to reduce its production targets in order to keep control of the cost of a barrel of oil, which has experienced historic increases following the Covid-19 crisis.

The OPEC + countries decided on Monday to reduce their production to support prices in the face of fears of recession, a first for more than a year and the drastic cuts made due to the Covid-19 pandemic.

Representatives of the thirteen members of the Organization of the Petroleum Exporting Countries (OPEC) and their ten allies have agreed to “return to the quotas of August”, a drop of 100,000 barrels compared to September, announced the alliance in a press release. The group, which met by videoconference on Monday September 5, leaves the door open to new discussions before the next meeting on October 5, “to respond if necessary to market developments”.

Over the course of its monthly meetings, OPEC+ is resisting calls from Westerners to open its floodgates more widely in order to contain the surge in prices and inflation at its highest in decades. Driven by the news, the prices of the two world crude oil benchmarks rose by more than 3%, to 96.40 dollars a barrel of Brent from the North Sea and 89.80 dollars that of WTI around 12:50 p.m. GMT (2:50 p.m. in Vienna).

Caution

“This symbolic drop is not a real surprise after the murmurs of recent weeks,” reacted in a note Caroline Bain, analyst at Capital Economics. The Saudi Minister of Energy, Abdelaziz ben Salman, had seemed to open the door, ten days ago, to the hypothesis of a cut, denouncing a market “fallen into a vicious circle of low liquidity and volatility extreme”. Affected by an increasingly gloomy global economic outlook, prices had recorded their third consecutive monthly decline in August, far from their peaks at levels close to 140 dollars a barrel.

“Better to stop now. Better to be too careful”, explains Bjarne Schieldrop, analyst at Seb, to explain the decision of OPEC +. The alliance “clearly wants to maintain the high prices” that provide it with lucrative revenue, adds Craig Erlam, an analyst at Oanda. In addition, “it may fear that the return of Iranian crude to the market will tip the balance of the market in favor of supply and therefore lower prices”, he adds.

Hopes of an agreement, which would be accompanied by an easing of American sanctions, in particular on oil, have recently been revived. Before a new cold shower in these interminable talks: the United States estimated Thursday that Tehran’s response to the text submitted by the European Union was “unfortunately (…) not constructive”.

Question of “credibility”

Another element taken into account is the inability of OPEC+ to achieve its objectives. “Current production and quotas are now disconnected, so it’s a matter of credibility,” Schieldrop points out. Extended political crises, or lack of investment and maintenance during the pandemic now handicapping oil infrastructure: many countries in the group such as Angola or Nigeria cannot pump more, already appearing to be at their maximum capacity.

Only Saudi Arabia and the United Arab Emirates seem to have spare production capacity. It is also a new message addressed to Westerners, who are trying at all costs to stem inflation. Latest announcement to date, the seven most industrialized countries decided on Friday to “urgently” cap the price of Russian oil, in order to limit the resources that Moscow derives from the sale of hydrocarbons. But Russia has warned that it will no longer sell oil to countries adopting this unprecedented mechanism. The supply on the market could then be reduced, which would contribute to a new surge in prices which, despite the recent decline, remain historically high and extremely volatile.

#Gasoline #prices #Oilproducing #countries #cut #production #target #prices #high

ADVERTISEMENT

About the author

madishthestylebar

Leave a Comment