April 2, 2024
Today at
19:01
In the shadow of the AI stock market violence, the oil price has rallied by almost 17 percent since the start of the year. The 90 dollar limit is in sight, thanks to a disciplined OPEC+, a recovering Chinese and American industry, and fireworks in Russia and the Middle East.
The OPEC+ oil cartel will hold an online meeting on Wednesday to evaluate market conditions and the agreed production cuts of its members. These members are, for once, remarkably disciplined, meaning that a tightened oil supply combined with robust demand is giving the oil price a boost. Yesterday, the price of a barrel of Brent oil briefly rose above $89, the highest level since October and almost 17 percent higher than at the start of 2024.
According to OPEC+ sources, the group will not announce a change in production policy on Wednesday, Reuters news agency reported. Last month it was already decided that the voluntary production limit of 2.2 million barrels per day will be maintained until the end of the second quarter. That cut, which was approved in November, is necessary due to “global economic concerns,” OPEC+ said.
Just as importantly, Russia plans to cut its oil production by almost 500,000 barrels per day during the second quarter, starting with 350,000 barrels in April. This is remarkable, because Russia traditionally resists production restrictions for fear of losing market share.
The oil analysts at the JPMorgan stock exchange suspect that the Russian cut has been imposed by the dire circumstances in which the country finds itself as a result of its war against Ukraine. Read: a lack of money to tap the dwindling reserves in the Siberian oil fields and a lack of top Western technology due to sanctions.
In addition, Russian oil terminals and refineries are under fire from Ukrainian drones. They hit Russia’s third largest oil refinery on Tuesday. According to Reuters calculations, drones have disabled 14 percent of Russia’s refining capacity.
Production cut
If Russia sticks to the promised production cut, which JPMorgan has no doubts about, its oil output will fall to 9 million barrels per day by June, the same as OPEC leader Saudi Arabia, which is responsible for the bulk of the production cuts.
According to analysts, OPEC+ would do well to increase production from the summer, otherwise the oil price could rise to 100 dollars. Combined with a strong dollar – the currency in which oil is traded – this could put pressure on international demand for oil and cause the price to plummet, it said.
Upward price pressure also comes from the Middle East, where an Israeli airstrike on an Iranian consulate in Syria early this week killed several generals of the Iranian Revolutionary Guard. A retaliation by Iran could escalate the conflict in Gaza into a regional war that threatens to put pressure on Middle East oil exports.
There is also an important catalyst for higher oil prices on the demand side. Chinese industry grew for the first time in six months in March, while American factories also recovered for the first time in a year and a half. Growing energy appetite from the world’s two largest consumers, the US and China, could boost oil prices.
The rising oil price is good news for energy stocks. The sector was the biggest gainer in Europe on Tuesday, with a gain of 3.8 percent for Total and 3.5 percent for Shell. In the US, the oil and gas sector is doing even better. After the untouchable semiconductor sector, oil and gas is the biggest performer with a gain of 32 percent since the start of the year.
