The announcement of reduced supply raised oil prices

The announcement of reduced supply raised oil prices

Oil prices rose to 86 dollars, boosted by the announcement of leading producers that they will further cut supply to stabilize prices, destabilized by the emergence of problems.

In the morning trading, however, there was a decline. According to data published on the OilPrice website, Brent crude traded at $84.85 on Wednesday, and a barrel of WTI oil cost $80.58.

At the beginning of the week, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, announced that they would reduce the supply by an additional 1.66 million barrels per day from May until the end of the year, which caused a sudden jump in prices.

When added to the two-million-barrel-a-day cut that OPEC+ introduced in October last year, the total supply will be reduced by 3.66 million barrels daily, corresponding to about 3.7 percent of global demand.

Due to the OPEC+ announcement, many analysts now estimate that the price of a barrel on the London market could reach around $100 by the end of the year.

American investment bank Goldman Sachs expects it to reach $95 by the end of this year and then $100 by the end of next.

Callum Macpherson from the firm Investec said that from very few statements, it needs to be clarified what the motive for the supply reduction is. It may be the fear that the oscillations we recently witnessed in the capital markets could spill over to oil prices and the perception of OPEC+ members that the physical market is weak, which is not apparent in the wider market.

Investors fear

Investor concerns about higher costs for companies and consumers have halted a significant rise in oil prices. They also fear a rekindling of inflation, which could encourage central banks to raise interest rates at an accelerated pace.

Market observers are trying to estimate how long the US central bank will have to raise interest rates to “cool down” inflation and whether the US economy might collapse.

US industrial activity fell to its lowest level in nearly three years in March and could fall further if borrowing costs rise again, making access to credit more difficult.

On Monday, OPEC announced that the price of a barrel of its members’ oil basket reached $84.84.