OPEC+ extends its production cuts
According to our colleagues from BFMTV Bourse and Bloomberg, the member countries of the Organization of the Petroleum Exporting Countries (OPEC), as well as its allies (OPEC+, which includes Russia), have decided to extend three levels of reduction in their production of oil. OPEC+ has thus reduced its production to 5.85 million barrels per day.
In detail: the grouped and additional reductions amounting to 4.2 million barrels will be maintained until September 2024, while the voluntary cuts of 1.65 million barrels per day will be effective until the end December 2025. In other words, OPEC+ countries will begin to reopen their valves from September 2024 and fuel pump prices should therefore begin to fall from this month.
Fuel demand too low compared to supply
The strategy of OPEC+ member countries is based on a rigorous adjustment of their oil production to balance the world market. Due to the still tense international context (war in Ukraine, Israeli-Hamas) and inflation, the demand for oil is too low compared to the available supply. Fact, the petromonarchies and their allies do everything to maintain high prices in order to avoid suffering losses. Currently, thehe price of North Sea Brent, which is the benchmark in Europe, has fallen to around $76.96 per barrel, while US WTI is around $72.7 per barrel. For countries like Saudi Arabia, a barrel of oil must sell for at least $95 for it to be profitable for them.
In the short term, prices at the pump should remain volatile, but as mentioned previously, with a gradual reopening of the floodgates in OPEC+ countries, demand should increase from September 2024. Notwithstanding, If global demand does not recover as OPEC+ hopes, this increase in supply could lead to a glut of oil on the market, which would further lower crude prices and, therefore, increase prices at the pump.
