2024-05-28 News

Oil Prices Soar 17% Due to OPEC Cuts

01, Oil Price Rises by 17%

The international crude oil prices have once again risen rapidly.

Taking the WTI crude oil price as an example, it bottomed out and rebounded on September 27th, and then rose again on September 28th, but subsequently experienced a correction over the next two days.

If this were the end of the story, the trend would not be unusual, as occasional days of increase are common amidst a larger downward trend.

However, the five trading days following the start of October have shown that this wave of increase is very different from the previous ones, with five consecutive trading days of growth. In just one week, the WTI crude oil price rose from $81 to a peak of $93, an increase of 17.25%.

The rise in just these few days has almost filled the significant gap caused by the decline in September.

This increase has lasted longer and has been greater than the previous rise in oil prices caused by the situational tension resulting from Putin's sudden announcement of partial mobilization.

02, Two Major Dissatisfactions

Why has the oil price suddenly risen? Ultimately, it is due to the dissatisfaction of oil-producing countries with the oil price decline triggered by the Federal Reserve, so they decided to significantly reduce production after unified consultation.

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The United States is essentially self-sufficient in crude oil, so the amount of crude oil produced by other oil-producing countries seems to have little to do with the United States.However, the policy of the US dollar has a significant impact on crude oil prices. The reason is straightforward: since the establishment of the petrodollar system, oil has been settled in US dollars, and the fluctuations of the dollar will inevitably affect the price of oil.

Over the past half year, the continuous interest rate hikes in the US have led to the strengthening of the US dollar index, and the process of the dollar's appreciation itself suppresses oil prices.

One of the main factors for the decline in crude oil prices from June to now this year is the continuous creation of new highs by the US dollar index.

This is also one of the reasons why oil-producing countries, led by Saudi Arabia, are dissatisfied with the Federal Reserve.

The second reason for the dissatisfaction of oil-producing countries is even more profound.

The continuous interest rate hikes by the Federal Reserve force central banks around the world to follow suit, with many central banks raising interest rates more frequently and by larger margins than the US to avoid excessive devaluation of their own currencies.

However, substantial interest rate hikes will inevitably have a significant impact on the economy, which is the fundamental reason for the continuous decline in demand for oil.

Therefore, this is enough to make oil-producing countries even more dissatisfied.

03, OPEC Production Cuts

In order to maintain their own interests, although they cannot determine the trend of the US dollar, they can decide the supply of crude oil.In the OPEC+ meeting at the beginning of October, the oil-producing countries decided to reduce their future daily production by 2 million barrels, which far exceeded market expectations.

However, many analysts have pointed out that this reduction is not real. This is because some oil-producing countries have not used up their original quotas, so the actual reduction is about 400,000 to 600,000 barrels per day.

But even so, from the previous increase in production to the sudden large-scale reduction, the impact on international oil prices is still very large. Therefore, since October, although the US dollar index has strengthened again, the price of crude oil has risen sharply instead of being suppressed by the US dollar index.

04, the United States' two concerns

Since the United States does not rely heavily on imported oil, the impact on the United States is mainly the rebound of inflation caused by the rise in domestic oil prices following the rise in international crude oil prices.

Of course, there is another impact. The United States is about to enter the midterm elections, and the rise in oil prices is likely to lead to a huge change in internal forces within the US government. This also makes the US government quite worried.

However, the United States has another biggest concern, but dare not openly.

The United States is worried that the oil-producing countries will continue to polish and form a tacit understanding, and in the end, lead to the collapse of the entire oil dollar system priced in US dollars.

After the conflict in Europe this year, Russia has taken the lead in requiring other countries to use rubles or yuan and other currencies for settlement when purchasing energy products.

It is very "coincidental" that Saudi Arabia also has this plan and is negotiating with China. In the future, China will use yuan to purchase Saudi oil.Iran has also previously proposed replacing the US dollar or foreign exchange with the Chinese yuan.

At the same time, many oil-producing countries have been selling off their limited US debt in recent years, trying to avoid being tied to the increasingly dilapidated dollar chariot.

Especially in recent years, digital currencies have gradually risen, and Russia, Japan, China, including the Eurozone, are all working on establishing new digital currencies. Once this is completed, it will be possible to bypass the dollar for settlement and transactions. At that time, the influence of the dollar will inevitably be much less than before.

This may be the biggest concern for the United States at present.

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