OPEC announced a further extension to its year-long oil production cut as global crude prices remain staunchly stable.
The Organization of Petroleum Exporting Countries (OPEC) announced a further extension of the oil production cut put into place in April 2023. OPEC includes some of the world’s largest crude exporters, though Saudi Arabia and its massive reserves de facto rule it.
The alliance will maintain the 1.65 million barrels per day production cut for the following months in a desperate attempt to gouge prices artificially.
Oil prices hovered around the $81-83 per barrel level for the past few months despite geopolitical crises in the Middle East. OPEC and Russia colluded together since the invasion of Ukraine to artificially increase prices and maximize state revenues.
Saudi Arabia needs cash to finance its massive economic transition away from fossil fuels. To that end, the kingdom also announced a $12 billion sale of Saudi Aramco shares for the first time since the company went public in 2019.
On the other hand, Russia’s oil exports have been hit hard by Western sanctions and the G7-imposed price cap. Russian oil exports remained quantitatively stable as demand from China and India surged, but prices were much lower compared to previous European trade.
However, because of the voluntary production cut and geopolitical tensions in the Middle East and Ukraine, global oil prices slightly increased at the end of 2023. According to Reuters calculations, Russian oil revenues doubled in April 2024 compared to the year prior.
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Following the announcement, Brent crude jumped 0.16% to $81.25 per barrel while West Texas Intermediate (WTI) increased 0.17% to $77.09.
It’s unclear whether the extension will have the intended effect. Analysts think OPEC and Russia have the $100 level in mind, which hasn’t been reached since late 2022.
There have been instances in the past few months that almost saw oil prices jump to that level. The Iranian attack against Israel in April, for example, could have brought prices to $130 in case of further escalation.
However, several factors contributed to global oil prices remaining stable.
China and the European Union, two of the world’s largest oil importers, lowered their fossil fuel demand as they increased energy production from alternative sources.
The United States, on the other hand, increased its domestic crude production from the large shale basins in Texas. As of 2023, the US is the world’s largest crude producer, fueling all of its internal demand.
However, the current price stability could be overturned at any moment, especially as geopolitical tensions around the world increase drastically.
