Bad students
In this context, how to justify such a decision? If these players act in this way, it is first to be more competitive in the face of countries that are not part of OPEC, like the United States, and thus grab market share. “We are in a situation of economic slowdown with a decrease in demand for oil and a drop in prices”details Charlotte de Montpellier, economist at ING. However, so far, these countries have played on the scarcity of the offer to boost their prices. An untenable strategy at present. “It is no longer viable, since the demand has dropped sharply. Today, they are therefore ready to sell the barrel at a significantly lower price.” The idea is therefore to sell more to keep their income afloat.
By opting for this new aggressive line, Saudi Arabia also intends to oblige certain OPEC members to respect their production quotas. “OPEC members make agreements very regularly to determine what everyone has the right to produce. But there are good and bad students.” Iraq and Kazakhstan are particularly pointed out. In recent months, these two states have systematically produced beyond quotas. “When the market is supported, it is not dramatic. But for the moment, it is much more annoying for countries like Saudi Arabia.” This powerful state therefore wanted to set the record straight. “Reflection is to say that they have the capacity to produce more, and that they do not want to be the stuffing turkeys. By doing this, they are aware of pushing prices down by producing more, but too bad.”
Entente to the beautiful with Donald Trump?
This new strategy would also be an opportunity to forge good relations with Donald Trump. Shortly after taking office, the American president had indeed urged Saudi Arabia to review his production of black gold upwards. “Donald Trump actually wants oil prices to be low, as this makes it possible to lower inflation for American households. This is all the more important in a context of inflation caused by the rise in customs duties”continues Charlotte de Montpellier. Note that this trend nevertheless has a setback, since it penalizes American oil producers, who cannot align with such low prices.
Concretely, what will be the effects of this fall in oil prices on the world economy? “The consequence is obviously that this energy will be cheaper for households and businesses, which will lower inflation.” A priori, the prices should maintain around 55-70 dollars per barrel for the rest of the year. But there is no reason to rejoice. “Let us not forget that the starting point for this fall in oil prices is a slowdown in the economy.”
