Here’s how Russia will benefit the most if OPEC and its allies reduce oil output
This week, OPEC and other oil-producing countries agreed to cut oil production by a lot more than expected. This will help Russia the most and hurt the West, where energy prices are already at record highs.
On Wednesday, OPEC+ and the West both pointed fingers at each other after the group cut supply by 2 million barrels per day, or 2% of global supply, in a market that was already tight.
Saudi Arabia, which is the leader of OPEC, said that it was just reacting to the rising interest rates in the West, where central banks like the U.S. Federal Reserve are “belatedly” reducing liquidity, which causes the dollar to rise and makes oil cheaper.
The Kremlin said on Thursday that the cuts were meant to stabilise the market and that they proved that OPEC+ is a group that can be trusted to keep the market stable.
The cuts of 2 million bpd are more than 4% of the 43.8 million bpd that OPEC+ wants to produce overall.
But the group was already having trouble meeting its production goals before the cut. In August, it pumped 3.6 million fewer barrels per day than it was supposed to.
Angola and Nigeria have been the countries that have lagged behind the most over the past few years because they haven’t invested enough.
In the past few months, Russia has joined them. After its invasion of Ukraine, Russia was hit with harsh sanctions from the West. In September, it was pumping 9.9 million bpd, which was less than its goal of 11 million bpd.
Under the deal reached on Wednesday, Russia is supposed to cut its output to 10.5 million bpd, which is about 0.6 million more than it is doing now.
“Russia will not have to make any cuts. “It’s good news for Russian oil companies, since they’ll make more money from the higher prices while their output stays the same,” said the BCS Express brokerage in Russia.
Saudi Arabia, which is the leader of OPEC and has been pumping up to the goal, will have to cut around 0.5 million real barrels per day, which is worth $46 million per day or $1.4 billion per month.
The senior vice president of Rystad Energy, said that he thought Saudi Arabia (with 520,000 bpd), Iraq (with 220,000 bpd), the UAE (with 150,000 bpd), and Kuwait (with 100,000 bpd) would do most of the work to cut oil production by 1.2 million bpd (135,000 bpd).
How Russia will benefit the most if OPEC reduce oil output
He said that higher oil prices will add to the inflation problem that central banks around the world are trying to solve, and higher oil prices will be taken into account if central banks decide to raise interest rates even more to slow down the economy.
Analysts at Morgan Stanley also said that the cuts would make the oil market much tighter, especially when the EU ban on oil and refined products from Russia goes into effect this year and next.
Analyst Martijn Rats said, “We now see the oil market nearly 1 million bpd short again in 2023.”
Russia’s production is likely to drop even more, and the oil it sells to Asia will have to be sold at a deeper discount.
Hansen said he thought the U.S. Fed would raise interest rates even more, which would make the dollar stronger, bond yields go up, and the global economy would slow down, which could take longer to fix.
Norbert Rücker of Julius Bär said that the tensions between the people who use oil and the people who make it would get worse.
“More reasons exist for the West to loosen sanctions on pariah states like Venezuela or Iran. “As a country that needs oil, China seems torn between the two sides,” he said.
