The Organization of the Petroleum Exporting Countries (OPEC), basically commanded by Saudi Arabia, surprisingly announced on Sunday that will reduce its oil production from May, by 1.16 million barrels per dayand that it will maintain the new production level for at least the remainder of the year.
The measure is added to the previous announcement by Russia, an OPEC partner, in the sense that it will cut its production by 500,000 barrels for the remainder of the current year as well.
Thus, OPEC+, that is, the member countries of the oil cartel plus Russiawill reduce production by 1.660 million barrels per day.
The effect on prices was not long in coming, although prices are far from their all-time highs.
This OPEC adjustment is aimed at maintaining the current price level, in order to prevent prices from collapsing, as they fear due to the increase in demand due to the economic recovery.
untimely adjustment
The problem is that the adjustment to oil production by OPEC+ comes at an inopportune time because it is feared that, given the lower availability of energy, some products in that sector will be more expensive: gasoline, light diesel, of course oil. and the entire energy sector in general.
And that would be the least of it, but it turns out that all these products are generators of inflation by themselves.
So, just at the moment when central banks are trying to control the most important inflationary spike in decades, a crisis in the energy sector generated by adjustments in oil production that can cause new pressures, putting central banks in check .
The Fed worried
The foregoing is not only thought by market analysts, including the Fed itself has already ruled.
This same Monday the president of the Federal Reserve Bank of San Luis, James Bullard, said that it was not clear what implications the increase in oil prices will have for the monetary policy of the United States, but he admitted “some concern” in the organism of which it is a part.
Speaking to Bloomberg, the banker said: “This has been a surprise. Whether it will have a lasting impact is an open question, but there is some concern.“
“Oil prices fluctuate. It is difficult to follow them exactly. Some of that could fuel inflation and make our job a bit more difficult,” said Bullard, who however does not have a vote on monetary policy decisions this year.
But that doesn’t mean his word doesn’t carry weight, Bullard is in fact one of the most heard voices at the Fed.
For those who heard his words and know his style, they know that behind them there is the possibility that the Fed will have to raise its interest rates even more in this bullish campaign that apparently would end in the first half of 2023, or even before June if the figures allowed.
But the oil factor came like a bucket of ice water to the monetary policies of the world’s central banks, the possibility of additional spikes in inflation, caused by the energy factor, cast doubt on the end of rate hikes.
geoeconomic scenario
OPEC+ seems to be following its own agenda, it is willing to prevent oil prices from collapsing and affecting the battered finances of the oil-producing countries, hit precisely in recent years by lockdowns and economic slowdowns.
Several scenarios are perceived now. However, for those who closely follow the trajectory of the oil market, there are some signs that the apparent market “equilibrium” perceived in recent months is coming to an end, it has always been fragile and OPEC+ appears to be willing even to wage a battle against central banks if petroprices they fall excessively.
Faced with the dilemma, this Monday the proposals that speak of the fact that central banks could or should temporarily modify their inflation target for a higher one were also reborn, given the accumulation of factors that constantly put pressure on prices, and it seems that it will not be for a short period.
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