- On Sunday, OPEC+ announced a production cut of 1.16 million barrels per day, a move that oil markets had not expected.
- Some analysts predict that oil prices will run as high as $100 a barrel.
- “It’s a tax on every oil-importing economy. It’s not the US that feels the most pain from $100 oil,” said Pavel Molchanov, managing director of Raymond James.
The Esso Fawley oil refinery, operated by Exxon Mobil, on Thursday, May 14, 2020, in Fawley, UK.
Luke MacGregor | Bloomberg | Good pictures
A surprise production cut by OPEC and its allies has lifted oil prices – and analysts say major oil importers such as India, Japan and South Korea will suffer the most if prices hit $100 a barrel, as some predict.
On Sunday, OPEC+ announced a production cut of 1.16 million barrels per day, a move that oil markets had not expected.
“This is a tax on every oil-importing economy,” said Pavel Molchanov, managing director of private investment bank Raymond James.
“It will not be the United States that will experience the most pain from $100 oil, but countries without domestic petroleum resources: Japan, India, Germany, France … to name a few big examples,” Molchanov said.
Voluntary cuts by countries in the oil business began in May and will last until the end of 2023. Both Saudi Arabia and Russia Cut oil production by 500,000 barrels per day Until the end of the year, other OPEC member countries such as Kuwait, Oman, Iraq, Algeria and Kazakhstan are also cutting production.
Brent crude futures rose 0.57% to $85.41 a barrel, while US West Texas Intermediate futures settled at $81.11 a barrel.
“The regions most affected by oil supply cuts and the associated crude price hikes are highly import-dependent and have a high share of fossil fuels in their primary energy systems,” said Henning Klostein, director of the Eurasia Group.
If oil rises further, even discounted Russian crude will start to hurt India’s growth.
Director, Eurasia Group
“Although they are still profiting from discounted Russian gas, they are already suffering from high coal and gas prices,” Glostein said.
“If oil rises further, even discounted Russian crude will start to hurt India’s growth.”
Oil is the most significant energy source in Japan About 40% accounts Its total energy supply.
“Lack of significant domestic production, Japan is heavily dependent on crude oil imports, with 80% to 90% coming from the Middle East region” International Energy Agency said.
For South Korea, it produces oil Its main energy requirements areAccording to independent research firm Enerdata.
“South Korea and Italy rely on imported oil for more than 75%,” Molchanov pointed out.
Europe and China are “highly exposed,” according to Clostein.
However, China’s exposure is slightly lower due to domestic oil production, and Europe as a whole relies mainly on nuclear, coal and natural gas, but relies on fossil fuels in their primary energy mix.
Molchanov said some emerging markets that “do not have the foreign currency capacity to support these fuel imports” would be negatively affected by the $100 price tag. He identified Argentina, Turkey, South Africa and Pakistan as vulnerable economies.
Sri Lanka, which does not produce oil domestically and relies 100% on imports, will be hit harder, he added.
Cooling towers release steam at the Leuna refinery and chemical plant complex, home to refineries and plants operated by TotalEnergies, in Leuna, Germany, Tuesday, June 7, 2022.
Christian Bocsi | Bloomberg | Good pictures
“Countries with low foreign exchange reserves and countries that are importers will be more affected by oil pricing in US dollars,” said Amrita Sen, founder of Energy Aspects.
However, with $100 per barrel likely on the horizon, Molchanov said the high price point cannot last long and is not going to be a “permanent plateau.”
“Longer term, prices will probably be more in line with where we are today” — around $80 to $90 or so, he said.
“Once crude oil hits $100 a barrel and stays there for a while, it prompts producers to ramp up production again,” Clostein said.