Gasoline and diesel prices can only rise: this is not a bet, it is a fact that must be accepted. The decision of OPEC+ countries, especially Saudi Arabia, to cut oil production is increasing the market prices and also the gold of Russian oil. ceiling price -, there are obvious reflections on the fuel pump, already from Easter. At the beginning of the year, forecasts for oil producers were bleak, and $100 a barrel seemed like a dream: now that threshold could be a reality. So why did OPEC countries take this decision? For whom? Definitely not for consumers.
OPEC decided: cuts
The oil production cut decided by the OPEC+ countries immediately caused a significant rise in market prices. OPEC+ is the “extended” organization that brings together the oil-producing countries, to which ten more countries have been added since 2016, including Russia: together they represent almost half of the world’s oil production.
With a surprise announcement, OPEC+ decided to cut oil production by more than 1 million barrels per day. The deficit contributes to the simultaneous extension of the 500,000-barrel cut Russia agreed last November in response to Western sanctions for the war in Ukraine. In summary: More than 1.6 million barrels of oil will be missing from the market throughout 2023, starting from May.
Before the official announcement, Saudi Arabia, the world’s most important oil producing country, had already announced that it would reduce its production by 500,000 barrels per day. Subsequently, all other OPEC+ members gradually reported further cuts, from 144,000 bpd in the United Arab Emirates to 40,000 bpd in Oman.
The decision was not expected due to the relatively high Brent prices and the oil demand forecasts that are expected to rise due to the economic recovery after the end of the restrictions due to the Covid-19 in China: It is estimated that China alone can make it. will consume 16 million barrels per day.
What does Saudi Arabia want?
So what’s the point of cutting oil production? The cut is also viewed by analysts as a hostile political move and Saudi Arabia’s response to the US: the US administration has used 26 million barrels of reserves and has declared that it does not want to change them for the whole of 2023. to control inflation.
Saudi Arabia responded by cutting production, a move that boosted prices and therefore revenues. Meanwhile, the Saudi crown has recently announced a number of major investments:
- $7 billion for a refinery in China;
- 8.5 billion to build a green hydrogen plant in Neom, near the Jordanian border;
- $8.8 billion for new tourist facilities in the Red Sea
Altogether, the Saudi government plans to invest around $1.3 trillion by 2030 to diversify the economy and make it less dependent on oil production: however, it will be crude oil that will finance this transition in the near future.
And indeed, Brent prices, the main oil reference index for the Middle East, Europe and Africa, rose immediately after the expanding OPEC announced the cuts, surpassing $88 a barrel in the latest survey. Brent was below $80 in the last currency before the OPEC statement.
Is Russia having fun?
OPEC was behind Russia’s decision to cut oil production. This is good news for Vladimir Putin’s coffers: high prices in the markets compensate for production cuts and provide oxygen to the state budget, which has been tested by the war in Ukraine and Western sanctions.
Kremlin spokesman Dmitry Peskov said the announced cuts were “in the interest of global energy markets”. The European Union’s reaction was outraged, through EU Energy Commissioner Thierry Breton: “Those who control fossil fuels are playing. They see prices falling because demand is falling, and therefore they are producing less to raise prices”.
The price increase allows Russia not only to compensate for the decline in revenues from the export of energy products, especially gas, but also to bypass the oil price ceiling: as can be seen from the ISPI chart, the official quotations of Russian oil – the Urals – have been drawn up by the G7 ministers and the EU for the first time. exceeded the agreed ceiling of $60 per barrel.
When gasoline and diesel increase
But what are the end results for consumers? The market is already sending us signals. UBS analysts calculated that the OPEC+ cut would result in at least a $5 increase in prices; this is an increase placed in the context of a scarcity scenario: The International Energy Agency predicted a deficit of one million even before the cut. and one and a half million barrels per day for the second half of 2023.
Goldman Sachs, on the other hand, predicts that Brent could rise to $95 by the end of the year, and then to $100 in April 2024, precisely because of the scarce supply in the market. As a result, the price of gasoline and diesel increases. What’s more, pump fuel prices are rising as millions of Italians head out for Easter.
Recent surveys by the Ministry of Commerce and Made in Italy on around 18,000 fuel plants give an idea of the situation: unleaded petrol per “service” has risen again to over 2 euros, especially at motorway factories, where it has already reached 2,499 euros, for example the A21 Turin-Piacenza The same price is recorded for diesel per liter as in . and on the A12 Genoa-Sestri – always in service mode.
On the A1 Milan-Naples, gasoline reaches 2,449 euros per liter and diesel reaches 2,349 euros per liter, while on the A13 Bologna-Padua motorway you spend 2,399 euros per liter for green petrol and 2,456 euros per liter for diesel. In the A22 Brennero-Modena, a liter of petrol costs 2,439 euros, and diesel costs up to 2,389 euros. Prices are also high on the A14 Bologna-Bari-Taranto (2,392 euros per liter for petrol in service mode, 2,449 euros for diesel) and the A15 Parma-La Spezia (green 2,349 euros, diesel 2,449 euros).
As always with DIY you save money, but even then prices rise quickly: the average price of petrol is 1,878 euros/liter, diesel is 1,774 euros/liter. And they will only increase as there is less oil on the market.
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Source: Today IT
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
