As of Monday, no more Russian oil may be delivered to the EU, but the alternatives are looking bad. OPEC countries reiterated their intention to produce less oil ahead of their monthly meeting on Sunday. That should raise the price again.
A barrel of oil from one of the 13 OPEC countries currently costs around $80 on average. Compared to previous years, this is a steep price, but not enough for the cartel states. They look enviously at the times in the summer when they could earn up to $124 a barrel. Since then it has fallen by 35 percent. Above all, the weakness of the global economy and the associated high inflation caused prices to fall.
OPEC, with its eleven loose members, who together form OPEC, therefore decided to take countermeasures back in October. She wanted to produce two million barrels less oil from November. In fact, daily production has since been cut by around a million barrels a day. Saudi Arabia alone, the most important OPEC member, produced 470,000 barrels less per day. It was the biggest cut in funding since the first Corona wave in 2020.
The global outcry was great. US President Joe Biden complained that OPEC was jeopardizing the global economy and indirectly financing Russia’s war in Ukraine. Russia is the most important OPEC member, but in previous years it has often argued with Saudi Arabia about the right measures to take when it comes to pricing. The International Energy Agency IEA from Vienna also sharply criticized the cut. It increases the risks to global energy security.
OPEC’s decision is only partly voluntary and made with calculation. Large members such as Saudi Arabia and the United Arab Emirates are free to decide on their funding. Things are different in Russia because of the sanctions. Here, production could fall significantly, especially from December, when the EU oil embargo comes into force and Russia will then not only no longer be able to transport oil to Europe, but deliveries to Asia will also be restricted as a result. In October, Russia was already around 1.3 million barrels per day below its actual production target.
Other members of OPEC are having technical problems. Nigeria and Angola, for example, which are among the 20 most important oil producers in the world, have repeatedly had to cut back on their production because there is a lack of equipment for repairs and investments for the renewal of plants. In October Nigeria produced only half as much oil as originally planned. Angola remained around a third below its funding target.
OPEC justifies its move by saying that it expects to be able to sell less oil to China in the future. In view of the lockdowns and production losses that are still in force there, demand has collapsed. Accordingly, less oil is needed on the world market. So far, the subsidy cuts have hardly had any impact on prices. Oil from the “OPEC basket” has fallen in price by 14 percent since the end of October. The European variety Brent and the US variety WTI fell less sharply at 6 and 5 percent respectively. The already much cheaper Russian oil from the Urals fell by a further 18 percent in price.
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German consumers notice that too. The price of a liter of diesel fell last month by around 13 percent to 1.84 euros. With premium gasoline, it is a minus of around 8 percent to 1.72 euros per liter. These are values that have not been this low since the beginning of the Ukraine war – except for the tank discount period in the summer. OPEC’s decision to cut oil production initially has no direct impact on this. It would only allow prices in Germany to rise if global oil demand fell more slowly than supply from the producing countries – which is currently difficult to estimate.
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