On Thursday, November 30, trading in the global energy market was accompanied by sharp fluctuations in oil prices. During trading, the benchmark Brent crude on the ICE exchange in London rose in price by 2.1% at once to $84.59 per barrel, and the cost of the American WTI rose by 2.2% to $79.59 per barrel. However, after such a sharp increase, the values corrected to $81 and $76, respectively, in the evening.
The emotional reaction of quotes was provoked by the next OPEC+ ministerial meeting. At a meeting on Thursday, a number of parties to the agreement decided to further reduce oil supplies to the world market, which was announced by Russian Deputy Prime Minister Alexander Novak following the event.
According to him, at the moment, the situation in the global oil market remains "quite stable." At the same time, in order to minimize possible risks, the parties considered it expedient to reduce the supply of hydrocarbons.
"These are the measures that will contribute to the passage of the winter period, a period of low demand, in order to ensure the stable operation of oil markets and the balance of supply and demand... We see risks, including within the framework of the decisions taken by the central banks of various countries (to tighten monetary policy – RT). In fact, this may create risks of a slowdown in the economy next year," Novak said on the air of the Rossiya 24 channel.
In addition, the Deputy Prime Minister announced plans to expand the composition of OPEC+. So, from January 1, 2024, Brazil will have to join the partnership.
- Deputy Prime Minister of the Russian Federation Alexander Novak
- RIA Novosti
- © Sergey Pyatakov
Recall that now the OPEC+ agreement includes 23 oil-producing countries, including Russia. As part of the deal, the states jointly control the production of raw materials and thereby regulate the supply of hydrocarbons on the world market. Such a policy is designed to keep the price of oil from significant collapses.
Back in October 2022, the parties agreed to reduce the total level of oil production by 2 million barrels per day by the end of 2023. At the same time, in 2024, the production of raw materials is planned to be reduced by another 1.4 million barrels per day.
In parallel with this official cut, some of the parties to the deal are now voluntarily reducing production by another 1.66 million barrels: the main reduction falls on Russia and Saudi Arabia - 500 thousand barrels per day each, and the rest of the volumes are distributed among Iraq, the UAE, Kuwait, Kazakhstan, Algeria, Oman and Gabon. Initially, this initiative was supposed to be valid until the end of 2023, but at a meeting on Thursday, it was decided to extend it for the whole of 2024.
In addition, Saudi Arabia is now voluntarily reducing oil production by another 1 million barrels per day, and Russia is cutting its exports by 300,2023 barrels per day. These measures were also supposed to be in effect until the end of 30, but following the meeting on November 2024, both countries decided to continue their implementation in the first quarter of 500. Moreover, Moscow is going to deepen the reduction in oil sales to <> thousand barrels per day.
However, the main innovation of the meeting was the decision of Iraq, the UAE, Kazakhstan, Algeria and Oman to voluntarily reduce oil production by another 700,<> barrels per day. This initiative will run from January to March next year.
The desire of OPEC+ countries to further reduce the supply of oil on the global market in 2024 may be due to the alliance's concerns about the prospects for the global economy. This point of view was expressed in an interview with RT by Igor Yushkov, a leading analyst at the National Energy Security Fund.
"This is an attempt to be ahead of the curve. Apparently, the parties fear that some of the major oil consumers – China, Europe or the United States – will face economic problems. In this case, the global demand for fuel will begin to weaken, and an oversupply of raw materials may form on the world market, which will lead to lower prices. Therefore, OPEC+ wants to reduce production in advance in order to prevent the occurrence of this surplus and keep the price down," Yushkov explained.
- Gettyimages.ru
- © Jakub Porzycki / NurPhoto
According to the expert, first of all, the parties to the deal may be alarmed by the situation in Europe. After refusing to purchase Russian energy resources in 2022, the European Union faced a rush rise in fuel prices and, as a result, an increase in prices for many other goods, which turned into a record acceleration of inflation. To normalize the situation, the European Central Bank sharply raised the key rate, but this led to a weakening of business and consumer activity in the region.
According to the forecast of the European Commission, in 2023 the EU economy will slow down almost six times compared to 2022 and grow by only 0.6%. Moreover, ten European states are at risk of facing a drop in GDP. We are talking about Latvia (-0.2%), Germany (-0.3%), Lithuania and the Czech Republic (-0.4%), Austria and Sweden (-0.5%), Luxembourg (-0.6%), Hungary (-0.7%), Ireland (-0.9%) and Estonia (-2.6%).
"Since OPEC+ has doubts that everything will get better in the global economy, the alliance now wants to push the price of oil up. In addition, the current level of quotations, which have been fluctuating around $80 per barrel for about a month, does not suit a number of participants in the deal, primarily Saudi Arabia. The fact is that the budget of the kingdom is based on the cost of oil at $85 per barrel, and therefore the current prices are too low for them," Yushkov added.
Above the ceiling
According to Igor Yushkov, by the end of this year, the price of Brent oil may rise to $90 per barrel. Natalia Milchakova, a leading analyst at Freedom Finance Global, shares a similar assessment. Moreover, as the expert noted, the more Brent costs, the higher the quotes of Russian Urals oil rise, which has a positive effect on the budget and economy of the Russian Federation.
According to the latest estimates by the Russian Ministry of Finance, from October 15 to November 14, the average cost of Urals oil was $79.23 per barrel. This is more than the budget for the current year ($70.1). In addition, the figure significantly exceeds the price ceiling set by the West ($60).
Recall that since February 2022, after the start of a special military operation in Ukraine, the EU countries, together with the United States and a number of other states, began to alternately refuse to import Russian oil. Moreover, in an attempt to put pressure on Moscow and deprive it of profits from the sale of energy resources, the EU and the G7 banned their companies from insuring and transporting raw materials from the Russian Federation by sea to other regions of the world at a price above $60 per barrel.
In response, Russia imposed a ban on the supply of energy resources to anyone who demands compliance with the price ceiling when concluding contracts. At the same time, the country's companies began to rebuild trade routes, but at first they were forced to provide significant discounts. For example, at the beginning of 2023, a barrel of Brent was traded at an average of $81.8 on the world market, while Urals was bought at about $46.8. Thus, at that time, the discount was $35, but by mid-November this value had dropped to almost $7.
"High global oil prices and the reduction of the Urals discount to Brent in recent months have been one of the reasons for the revival of the Russian economy in 2023. The full effect of all these events was reflected in the growth of our GDP in the second half of the year," Milchakova said.
It should be noted that in 2022, against the backdrop of unprecedented Western sanctions, Russia's gross domestic product decreased by 2.1%. However, according to the Ministry of Finance, in 2023 the economy will be able to fully win back last year's losses and add about 3% or even more.