OPEC+'s decision to reduce their production targets by 2 million barrels is still reverberating on the global market after three weeks. To keep up with rising oil prices, the US is releasing additional strategic reserves. It is not obvious that this measure will push the price on the oil market back down. Due to increasing demand from China, a further rise in oil prices is expected.
After two weeks of price falls, the oil market is on the rise again. On Tuesday, October 18, the price of Brent oil was at its lowest point of the week at $90,03 per barrel. Then the dip in the oil market, which had started since October 7, came to an end and the price rose sharply. At the time of writing (Thursday, October 20), oil prices are at their highest point of the week at $94,56 per barrel.
There is a good chance that this price increase will continue. There are signals from China that the strict corona rules are being relaxed slightly. The Chinese government is considering shortening the quarantine period for Covid infections by three days. Because strict lockdowns and a long quarantine period are significantly disrupting the Chinese economy, it is expected that relaxing the corona rules will cause oil consumption to rise again. After the news about the possible easing, the oil price rose by 1%.
OPEC+ intervention still hangs over the market
According to a report from the International Energy Agency (IEA), OPEC+'s intervention earlier this month continues to cause commotion. To keep oil production profitable, OPEC+ decided on October 5 to reduce their production targets by 2 million barrels. The oil cartel's intervention does not yet lead to the price of $110 per barrel that Goldman Sachs has in mind for the fourth quarter. However, according to the IAE, the oil price is approximately $14 higher than before the intervention. The IEA is not surprised that the effects of new production targets remain limited. In practice, the production drop is much smaller than 2 million barrels, because most OPEC members produced much less oil than the previous production ceiling allowed.
Despite this windfall, the production cut remains a problem for US President Joe Biden. Fuel prices have been historically high all year. That is why the US government has been releasing oil from strategic reserves all this year. Due to the intervention of OPEC+ and with the November 8 elections in mind, Biden released an additional 15 million barrels of crude oil. Price falls as a result of this intervention turned out to be short-lived, because oil production in the US turned out to be lower than expected. Analysts expect oil companies' reserves to increase by 1.7 million barrels this week, but in practice supplies shrank by 1,4 million barrels. The question remains how long the United States can continue to rely on its strategic reserves. At 405 million barrels, this stock is at its lowest level since 1984.
The price of diesel pays little attention to the rising prices on the oil market. The price of diesel has been falling since this week. On Sunday, October 17, the diesel price was at its highest point of the week at €173,83 per 100 liters. Then the price found its way down. At the time of writing, 100 liters of diesel cost €168,07.