Everything the collective West has thrown at Russia, it has been responded with substance. Brent oil had its highest weekly gain in over a year, rising 8 percent, as Russia announced slashing oil production by half a million barrels per day from March 2023. This translates into roughly 5 percent of Russia’s oil output – enough to maintain the market imbalance that has been the hallmark since the start of Ukraine-Russia war.
Russia has understandably felt the heat as EU’s ban on refined products on seaborne shipments took effect on February 5, 2023. Already facing record fiscal deficits, there was pressure from within, and it was only a matter of time before Kremlin doubled down. The planned cut in production is believed to have other Opec members on board – as Russia is a key ally of the larger Opec Plus group.
Observers do not expect the Opec members to respond with another cut – having slashed production by over 2 billion bps last year and sticking to it. The cartel continues to maintain the public stance that oil market at current prices remains massively underfunded and any sustained drop in prices could lead to bigger losses in production going forward. Opec has gone as far as projecting global oil demand of 110 million barrels per day by the end of 2025.
The likes of Goldman Sachs have slashed the oil price prediction for 2023 from late last year – in complete contrast to positions taken in the East – where a sustained rally beyond $100/bbl in the second half of 2023 appears to be on the cards. Russia has clearly stated that it will not be selling crude or refined oil directly or indirectly, to anyone adhering to price ceiling of the West.
That is where another superpower China comes into equation. While the fears of recession may not have completely waned, it is the reopening of China after years of operating under restrictions, that has shaped the discourse on oil. Early signs emerging from Chinese economic activity are indicative that China is all set to find its mojo back and drive global demand likes yesteryear. Demand from India is also in line to grow fastest in four years for 2023 – all making a strong case for bulls to reign supreme for what promises to be a continuously undersupplied global oil market.
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