After a weekend of intense negotiations, the ministers of the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and their partners, decided this Sunday to extend until the end of 2024 -that is, one more year- the cut production that they have been in force since last April and that they already partly anticipated in October 2022. Russia will also join this measure, “prolonging its voluntary cuts of 500,000 barrels.” They also agreed to the internal distribution of their pumping quota as of January 1 of next year, which will leave the cartel’s total offer at 40.46 million barrels per day (mbd).
Investors have suffered intense volatility in the raw materials market in recent weeks, waiting for what the large crude oil producers decide. Finally, their final resolution is in line with what many of them expected, although Saudi Arabia tried during the meeting to go a step further -it was willing to close its oil taps for the third time in less than a year- and even pressured to one of its partners to try to adopt more severe measures.
The objective of the group of 23 largest producers, including Russia, is to boost the prices of black gold. With this, they seek to offset the risk derived from a possible drop in demand in China, which in recent months has shown signs of economic weakness with indicators such as manufacturing activity well below expectations.
However, the price of oil has shown these months that the decisions of OPEC -responsible for 40% of world production- are not enough to determine its price. Moreover, the law of the market and the fear of a drop in demand due to the economic slowdown have prevailed in the face of the latest pumping adjustments launched by the oil cartel, with the price of a barrel of Brent, a benchmark in Europe, orbiting around 70 dollars, far from the 100 dollars that analysts anticipated a little over half a year ago.
below 80 dollars
Last Friday, the barrel had recovered 76 dollars. Even so, that price implies 12% less than the one it marked at the beginning of April, when OPEC announced its last production cut, by one million barrels per day. And it is even further, 21% less, than the 96 dollars that was around before an even bigger cut was announced last October, of two million barrels per day. This adjustment, the largest undertaken by the cartel since 2020, surprised the market much more, which had anticipated that the cut would be between one and 1.5 million fewer barrels.
Thus, the prices are still very far from the expectations of the producing countries, whose public accounts depend, and a lot, on the evolution of crude oil. Therefore, it is not surprising that the members of OPEC are much more satisfied with the prices of last summer, when the barrel of crude oil easily exceeded 100 dollars.
The fact that oil prices have given the market a lull also has its positive side. Specifically, for the central banks, since the fall in energy prices reduces inflationary pressure, supporting the fight of the monetary organizations against the rise in prices. In this sense, the situation is also more favorable for consumers, who see how the price drop in the markets where this raw material is traded should be transferred more intensely to variables such as fuels. And, therefore, also to the shopping cart.