Reduction in production, geopolitical context: the oil market under tension

2024-03-28 23:40:55

The oil market has been under pressure for several weeks now and crude prices are close to records. A barrel of Brent from the North Sea recently reached $86. At issue: the reduction in production, the geopolitical context, or even the recent Ukrainian strikes on Russian refineries.

Ukrainian drone attacks on important Russian installations have weighed on the country’s refining rate, which is at its lowest level in several months. To explain this phenomenon of rising prices, we must also take into account the surprise drop in American crude oil stocks. For several weeks, reserves have decreased by several million barrels while exports have increased and American refiners continued to increase their activity.

At the same time, members of OPEC agreed, 3 weeks ago, to extend the agreement to reduce crude production, starting with Saudi Arabia which will continue to slash its volume by one million barrels per day until next June. Kuwait, Algeria and Oman also renewed their cuts.

Fear of tensions on demand

These production cuts are keeping oil prices high. The resurgence of geopolitical risks in recent months, from the war between Israel and Hamas to Houthi rebel attacks on maritime traffic in the Red Seaalso increases tensions on the market.

Added to this is China’s economic weaknessthe world’s largest importer of crude oil, and the slowdown of the growth in Europe which also raise fears of a drop in demand.

Price stabilization

But prices remain far from their short-lived surge to nearly 100 dollars last September and especially from the 140 dollars reached following the Russian invasion of Ukraine. They even seem to be stabilizing today, after the vote on a UN resolution demanding a “ceasefire” in the Gaza Strip.

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