Shortly before Easter came the unpleasant news for the consumer. Everything shows that oil and fuel prices are on the rise again, after the decision of oil-producing countries to significantly reduce the production of the “black gold” from May 2023. According to the Ministry of Energy of Saudi Arabia, the reduction of production were jointly decided by the member states of the Organization of the Petroleum Exporting Countries (OPEC), as well as ten other countries participating in the expanded OPEC+ scheme. Russia, which is not a founding member of OPEC, plays a leading role in this scheme.

As early as February, Moscow rushed to cut production by 500,000 barrels per day in response to a cap on Russian oil adopted by the G7 group, the EU and Australia. It is now extending the restrictions for the coming months as well. The decision of OPEC and its companions undoubtedly favors Russia, as it strengthens the “war fund” of Vladimir Putin.

The big question is whether the reduction in production is a permanent phenomenon or a temporary tactic. Speaking to DW, David Kohl, chief economist at the Swiss private bank Julius Bär, estimates that, according to his own analysis, OPEC is simply “adjusting to demand, which internationally is declining.” If this prediction is verified, the price increases will not last.

Criterion is the demand in the Chinese market

Much will be determined by China’s needs. After the lifting of pandemic restrictions, many analysts believed that the restart of production in China would cause a huge increase in demand for energy, sending prices skyrocketing. But growth indicators have not returned to pre-pandemic levels. “There were rumors in the markets that the price of oil would fall further, and OPEC reacted to these very scenarios by deciding to cut production,” says David Kohl of Julius Bär. Of course, this was also the official justification put forward by the Saudis and OPEC themselves, saying that it is a preventive measure aimed at stabilizing prices.

For the global economy, the upward trend of oil is certainly not good news, as it works “multiplierically” and increases inflationary pressures on all goods and services, both for the producer and the consumer. And this at a critical juncture, with producers resenting the rising cost of money in an environment of rising interest rates. In the past twelve months alone the cost of repaying business loans has almost doubled following the latest central bank interventions to tame inflation.

New raises are coming

As for the consumer, in the coming weeks he will put his hand deeper into his pocket to meet the rising fuel prices. He will even be forced to put his hand even deeper in his pocket if he does not have an ally with the weather and is forced to order heating oil again. “A global contraction in supply obviously means that prices are going to rise in the coming weeks,” said Lundqvist Neubauer, a partner at the financial website Verivox.

According to calculations by this portal, last winter was anyway “the most expensive ever” for the consumer, despite the relatively mild weather conditions. Those who heat their home with oil, Verivox estimates, paid an amount increased by 18% compared to last year. For those who prefer natural gas, the increase reaches 20%.

Source: DW