Bad news for consumers shortly before Easter: fuel prices are likely to rise again. Because states of the oil cartel Opec+ have announced that they will significantly reduce their production from May. The Ministry of Energy in Saudi Arabia said the cut was being coordinated with some members of the Organization of the Petroleum Exporting Countries (OPEC) and non-members – hence the name OPEC+. Which countries these are was not mentioned. Russia, for example, is not part of the cartel, but belongs to the group of OPEC+ countries.
The Russian Deputy Prime Minister was quoted as saying that his country would extend a voluntary production cut by 500,000 barrels until the end of the year. In February, Moscow announced that it would limit its funding from March. The government in the Kremlin has thus reacted to the price cap for Russian oil that the EU, G7 and Australia had decided on.
Higher price – more money for Putin’s war chest
The cut in production by the oil cartel basically plays Russia into the cards. Because if prices rise as a result of the shortage of supply, Moscow can generate more revenue – and thus fill its war chest. “The big question is: are these price increases really sustainable?” David Kohl, chief economist at the Swiss private bank Julius Baer, told DW. Because according to his analysis, OPEC is more likely to be chasing a trend towards falling oil demand and is therefore adjusting its production. Then the price increases would be of a more short-term rather than long-term nature.
In any case, at the beginning of the week, prices on the international oil markets made a significant leap upwards, a barrel (barrel) of North Sea Brent at times jumped by more than six percent. While the Brent price was constantly below $80 in the past week of trading, it cost over $84 on Monday morning. Some analysts believe that prices could continue to rise in the coming weeks.
Demand from China will be crucial
That would end the trend of the past few months, which saw oil and energy prices come down from their highs last year. This was partly due to comparatively low demand as a result of the weakening global economy in recent months. In China in particular, many had expected the economy to pick up more quickly after Beijing lifted the strict corona restrictions. However, this boom in demand did not materialize, and the Chinese economy is only on a moderate growth path.
“There was quite a lot of speculation in the market that the price would fall further because of these fundamental developments. OPEC has now reacted in order to be able to keep the price higher,” says David Kohl. From this perspective, stable prices can be expected – which would also correspond to OPEC’s justification for the production cut, that it was a precautionary measure aimed at stabilizing the oil market.
Most expensive heating winter ever
Economically, increasing oil prices would not be good news in the long term. Because they would drive up costs for consumers and businesses alike. In any case, consumers are struggling with the high prices and companies with rising corporate financing costs. Because of the rising key interest rates in the fight against inflation, interest rates rise when companies take out loans. According to the latest data from the ECB, credit financing for companies in the euro area increased by 22 basis points to 3.85 percent in February. Within a year, interest rates on corporate loans have roughly doubled.
Finally, consumers will have to dig deeper into their pockets, at least in the short term, if they want to fill up their cars or refill their fuel oil supplies at the petrol pump. “Of course, the global shortage means that heating oil customers will probably see prices rising again in the next few weeks,” says Lundquist Neubauer from the comparison portal Verivox. The portal has calculated that last winter led to considerable additional costs. Despite comparatively mild temperatures, last winter was the most expensive heating winter of all time. While gas customers had to spend around 20 percent more for a warm home, the surcharge for customers with oil heating was 18 percent.