The OPEC+ meeting will have lasted 30 minutes. The decision fell: -2 million barrels per day less on the markets. Officially, the motive is “uncertainty surrounding the outlook for the global economy and the oil market”. Understand: with the coming recession, it is better to lower extractions before prices collapse.
However, other readings can be made: a standoff with the G7, a nod to Joe Biden whose midterm elections fear the rise in gasoline prices. What regarding inflation and recession? We analyze it all!
Oil demand forecasts indicate a decline,
while China is still closed due to Covid.
What will happen when Beijing reopens?
G7 – OPEC: the fight between two cartels
The reduction predicted by OPEC+ members (OPEC members and Russia as well as other major extractors) does not appear to be solely tied to market conditions and the coming recession.
OPEC members realize that if the G7 or European oil price cap on Russian crude succeeds or partially succeeds, it will be used once morest them. It is important to frustrate this effort before it begins.
The drop in oil producers’ extractions is a way to take their destiny into their own hands.
Probability of a recession in the USA and Europe
Source: Bloomberg
The midterm elections in the United States: the price of gasoline
Oil prices will rise and on the Washington side, President Biden’s teeth have cringed. Immediately following the OPEC announcement, Joe Biden announced that he would put 10 million barrels of oil on the market as of November. The goal is to keep prices low ahead of the election. After that, never mind the deluge.
Indeed, on November 8, the mid-term elections will decide the distribution of the rooms between the Republicans and the Democrats. Since Joe America wants his pickup truck and oversized SUV to run on cheap gas, he might sanction Biden’s Democrats. Americans don’t mess with gas prices.
It must be said that the White House has really done everything to artificially lower prices by leaving since March (180 days), 1 million barrels per day from the American strategic reserve. The Strategic Petroleum Reserve would allow the USA to survive an oil crisis of 3 to 6 months. Its levels are at their lowest in 10 years.
OPEC’s decision comes as the US Department of Energy has reportedly been instructed by the White House to examine whether a gasoline export ban would reduce costs for American consumers at the pump. The American Petroleum Institute demands that the USA extract more oil and gas and keep them for themselves instead of exporting them. A nod to Europe and Ursula von der Leyen who want to do without Russian oil by December and diesel by February 2023.
Economy and Inflation
At the beginning of the week, the stock markets jumped. Inflation is under control and all is well. Even Elon Musk found a solution to settle the war in Urkaine and all with 140 characters under Twitter.
It should be noted that the optical illusion, of a fall in inflation because of the increase in mortgage rates by the central banks, is only an optical illusion.
Indeed, if inflation prices are falling, it is because a barrel of oil has gone from $139 to $89. Look no further. On the other hand, if the barrel rises once more, it is at $93 in London and $87 in New York (+10$ in a few days) at the writing of this article, inflation will rise once more and the American Federal Bank will have to continue to tighten the screw with its rates. Bad news for the stock market.
OPEC quotas
Saudi Arabia and Russia will each lower their extractions by 526,000 barrels per day.
OPEC production will fall from 26.6 million b/d to 25.4.
In total, OPEC+ represents 40% of world extractions.
