Oil prices took a big step up this week. After Opec+ reduced oil production, the price of Brent oil rose by more than $6. The price is expected to rise a little further, but due to disappointing news about the US economy, the price increase seems to have paused for the moment.
On March 30, Brent crude was trading at $78,60 per barrel. The oil price then rose by more than 8% in just four days. On Monday, April 3, the Brent quotation was $84,93. The price then remained virtually stable for two days. On Wednesday, April 5, oil recorded the highest price of the week at $84,99. At the time of writing (Thursday, April 6), the oil price is falling slightly again.
This week's price increase is the direct result of the decision by oil cartel Opec+ to cut oil production by 1,16 million barrels per day. The decision came as a surprise to analysts. Global oil production has been at a low level since the autumn of 2022. In October, the cartel decided to cut oil production by 2 million barrels. This means that global oil production has already fallen by about 2%.
Although the oil price is at a low level due to the recent banking crisis, the sentiment is that the oil price will rise sharply in the long term. Due to the opening of the Chinese economy, oil demand in the Asian country will increase sharply in 2023, analysts from credit rating agencies and investment banks predict. Before the oil cartel's decision, there was already an expectation in the market that demand would exceed supply in the second half of 2023.
Saudi Energy Minister Abdulaziz bin Salman Al Saud indicates that the production decline has been initiated to stabilize the oil market. By this the minister is referring to the recovery of prices in the medium term. After the banking crisis, several prominent organizations revised their price expectations for the second half of 2023 from $100 to around $94. The current expectation is that the strategy will be effective. Analysts estimate that the oil price will increase by about $10 due to the production cut.
Price increases take a hit
However, things are not that far yet; After an increase of more than $6, the oil price leveled off and is currently even down. Once again, the decline is due to disappointing results from the American economy. The performance of the US services economy fell more than expected in March. The services sector shrank by no less than 8% in that month.
Although this negative result is somewhat tempered by news about oil supplies. US commercial inventories fell a lot faster than the market expected. A Reuters poll showed that the market expected oil reserves to decline by 2,2 million barrels, but commercial oil supplies fell by 3,7 million barrels, according to the US government.
The diesel price did not pay much attention to the rising oil price. Between March 31 and April 2, diesel traded for €117,80 per 100 liters. On Monday, April 3, the diesel market still moved with the oil price. The diesel price opened considerably higher that day, at €121,05. Then the price dropped. On April 5, the price of 100 liters of diesel was only €116,56, the lowest price since December 6, 2021.