BarcelonaOn Friday, April 12, a barrel of Brent crude, the benchmark in Europe, closed the session at $90.45. That weekend was transported to the Middle East, where Iran attacked Israel with drones and cruise missiles. On Monday the 15th of this month, as soon as the attack ended and with all fears of escalating tensions, a barrel of Brent closed at $90.15, a lower price than it was before the attack. On Friday, it is trading around $86.50.
This development defies all logic and does not obey the traditional movements of increasing the prices of the main energy of fossil origin when there is a war conflict in the Near East. It is true that the current price is higher than it was at the beginning of the year ($75.89 on January 2), but the price of crude oil last week represents a clear downtrend.
In addition, the war conflict is added to the OPEC+ decision To extend its decision to reduce production by 2.2 million barrels per day (million barrels) to maintain the price of black gold and thus protect it from the expected decline in Chinese demand, which would cause the price to fall if supply were higher.
what's going? OBS Business School Professor and Director of Eurocofin Consulting, Carlos Palado, explains that the price of a barrel of oil is expected to remain at its current levels in the short term, because this price is high enough to allow the main countries of OPEC + to achieve financial balance of its accounts. The expert notes that the cartel's main oil producer, Saudi Arabia, needs oil to trade at around $80 to balance its accounts.
In addition, Palado points out that OPEC+ countries are currently producing 20% less than their total capacity, or about 6.5 million barrels per day. However, its production is 25% higher than the historical average. He thus concludes that “there is no incentive to intensify reductions in the short term with the consequent rise in prices.”
Elections in the United States of America
Another matter is added to these circumstances. The United States, which during the pandemic saw its deposit capacity exceeded Its oil even reached negative prices, has now resumed mining and closed 2023 with record production. This provides stability on the supply side, Ballado explains. In fact, the United States has been the world's leading producer for six years, ahead of Russia by three million barrels per day and Saudi Arabia by four million barrels per day, and already contributes 22% of global production.
The bottom line, according to Eurocofin's director, is that if conflicts between Russia and Ukraine and between Israel and Iran do not escalate, Brent crude will remain at around $87.6 per barrel because “ultimately, OPEC supply cuts will be offset by historically high levels.” US production levels.”
Added to this is the fact that there is no risk of a shortage, at least for now. Antonio Asituno, managing director of energy consulting firm Tempus Energia, confirms that oil continues to flow through the Strait of Hormuz “without any hitch, so although there is a risk of a potential change, there is no shortage of supply.” Executive power also includes a new variable: In an election year, the President of the United States, Joe Biden, is not interested in jeopardizing energy supplies, especially with high inflation “still fresh in the minds of consumers.” In this regard, Acetono expects the price of a barrel to remain between $80 and $95 until the next OPEC+ meeting in June.
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