They are aware of last week's oil price rise. While optimism about the US economy remains unchanged, Saudi Arabia and Russia decided to maintain their lower production targets. In addition, the diesel price is increasing further due to production problems in Venezuela.
The oil price rose almost constantly last week. On Thursday, August 31, oil traded at $85,96 per barrel. By Wednesday, September 6, the price had risen almost $5. That day the oil price was $90,49. At the time of writing (Thursday, September 7), the price appears to be correcting slightly downwards.
This puts the oil price at its highest point in ten months. The increase follows the news that Saudi Arabia and Russia are maintaining their lower production targets until the end of 2023. To give the oil price a boost, Saudi Arabia decided to lower its targets by one million barrels per day. This is unique since the Gulf state normally only lowers the targets in consultation with the oil cartel OPEC. However, the cartel was unwilling to lower the targets. The kingdom did receive support from Russia. Putin decided to lower the Russian targets by half a million barrels.
Although the lower targets are mainly responsible for the higher oil price, the oil market is also still feeling the after-effects of the strong American economic results from last week. Recently, the pattern of constant build-up of reserves due to underestimation of demand has been broken. In recent weeks, the volume of oil reserves has fallen much more sharply than market expectations. A Reuters poll shows that economists expected a decline of 1,43 barrels. However, data from the American Petrolium Institute (API) shows that oil reserves have fallen by 5,5 million barrels.
Venezuelan oil
In addition, the importance of Venezuelan oil appears to be increasing. Since late August, there have been rumors that the United States plans to ease sanctions on Venezuelan oil. According to analysts, the US is already making an advance on this in practice. According to analysts, sanctions are already being less strictly enforced. The fact that imports are more or less tolerated is noted by the market. Shell committed an investment of $5 billion to the Venezuelan state oil company Petróleos de Venezuela (PDVSA) on Tuesday, September 1. But even now production is already increasing. In July, Venezuela reached its highest production since 2019 of 877.000 barrels per day.
However, the renewed confidence is not currently causing negative price pressure. It appears that the Venezuelan government cannot cope with the increased demand after years of sanctions. Due to the sanctions, much equipment has been neglected in recent years. As a result, the equipment that is supposed to make heavy oil suitable for other markets is starting to break down. In August, oil exports fell by as much as 38% to 544.000 barrels per day compared to the previous month.
The lower production of heavy oil in Venezuela and the continuation of lower production targets are putting considerable upward pressure on the oil market. On Thursday, August 31, the price of 100 liters of diesel was still €135,99. Nearly €7 has now been added. On Wednesday, September 6, diesel traded for €142,80. The time for cheap diesel seems to be over. Since the beginning of June, the price of diesel has increased by as much as €30.