Opec+ did what it was expected to do. The world’s largest oil cartel with nearly 60 percent of the world’s crude oil production at its disposal announced extending the voluntary production cuts through the second quarter of 2024. The oil prices reacted swiftly to the news, gaining 2 percent in two trading sessions before other factors started to kick in.
All surveys had indicated Opec Plus members led by Saudi Arabia and Russia to extend the cuts for at least another quarter, in an attempt to balance the market amidst a pushback from US crude production. Yet the market responded in a manner that is reminiscent of an unexpected decision. Although, Russia’s production cut quota remains unchanged from when it was first announced in November 2023 – it is the composition of the cut that carries more meaning.
Previous production cut from Russia was tilted more in the balance of exports than production. This time around, Russia has agreed to participate with a bigger share of production cut and lesser contribution from exports cut in the overall supply equation. The fact that the UAE and Kuwait have continued to tag along despite repeated rumours of rift, circulated mostly in the West also offers credence to the notion that there are no apparent signs of crack among the larger members of the group.
On the other hand, the growing anticipation of Fed holding the interest rates by the end of the first half of 2024, is working as a balancing act. An elevated dollar as a result of a higher interest rate should keep demand in check, more so in emerging economies. Talking of demand, the China question keeps popping up, but Chinese authorities have continued to brush concerns aside.
Having achieved 5.2 percent growth in the year gone by despite repeated warnings of slowdown by Western commentators, China has once again aimed to achieve an ambitious 5 percent economic growth target for 2024. It is early days, but China appears in no mood to hold back unleashing a rather big stimulus to keep the growth coming – after the lows of extensive lockdowns that stretched for a very long period. Oil inflows to China in the second quarter should be a good indicator in terms of China’s progress towards the 5 percent growth target – and could possibly be the decisive factor in determining which way the oil prices swing, as US Fed and Opec Plus keep reciprocating with balancing acts.
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