Surprising production cuts by the oil production association OPEC pushed crude oil prices up sharply at the beginning of the week. As the group officially announced, the reduction in daily production over the coming months will total 1.66 million barrels. That corresponds to about 1.6 percent of global oil production.
Oil prices then rose by up to 8 percent. This could “result in an increase in the price of the pumps,” said the ADAC on Monday. The price of petrol has risen slightly since the beginning of the year – diesel, on the other hand, has become cheaper.
Kremlin spokesman Dmitry Peskov said in Moscow that the decision to curb oil production is aimed at keeping prices at a certain level. “That’s exactly what you have to focus on.”
A barrel of North Sea Brent for delivery in June traded for $84.02 on Monday, up $4.13 from Friday. The US variety West Texas Intermediate (WTI) for delivery in May also rose significantly, up $4.07 to $79.74.
Russia justifies step by looking west
Eight countries, above all Saudi Arabia, Iraq, the United Arab Emirates and Kuwait, want to reduce their oil from May until the end of the year. In addition, Moscow announced that it would not let its existing restrictive subsidy policy expire in June as planned, but would continue it from July.
In a statement, Russia’s Deputy Prime Minister Alexander Novak argued that this would ensure predictability in oil markets. The large fluctuations in the markets are due to “the ongoing banking crisis in the USA and Europe, global economic uncertainty and unpredictable and short-sighted energy policy decisions”, said Nowak, also with a view to western sanctions against his country.
Decision came “completely out of the blue”
Oil traders had assumed that OPEC would keep its output stable due to a slowdown in the economy as a result of rising key interest rates. “There was no corresponding indication that prices had recently recovered. That was completely out of the blue,” said commodities analyst Carsten Fritsch from Commerzbank.
The cuts now announced are significantly higher than the previous reduction in autumn, said Fritsch. At that time, the 20 OPEC states had formally agreed to reduce their production targets by 2 million barrels, but because some of the countries had previously produced significantly less, they did not have to reduce their actual production. According to Fritsch, only one million barrels were cut. Now, on the other hand, one can assume that the new plan will be implemented as announced – only in the case of Russia that is not certain.
In contrast to the previous cut, this time it is a step that was not decided by the entire Opec. “It doesn’t mean anything good. A small group seems to have done their own thing without prior consultation,” said Fritsch.
