Brent barrel loses $80 due to OPEC+ failure to raise prices
The price of oil fell sharply after a meeting of the cartel of crude oil exporting countries. A barrel of Brent fell below $80 this Monday, losing more than 3% and given confidence that voluntary production cuts will end at the end of 2024. In fact, oil futures contracts are reflecting lower prices as maturities increase, while expert consensus predicts a decline of more than 10% between now and 2027.
The Organization of Petroleum Exporting Countries and its allies, including Russia (OPEC+), decided to maintain their production reduction until 2025. However, the voluntary cuts being implemented by some of its members could end as early as October this year. This caused oil prices to fall to lows not seen since February of this year and defied expectations of a new rise in prices: inflationary fears of the West and the goal that large oil producers were striving for.
“After the relentless pursuit of $100 a barrel oil, The OPEC+ cartel has practically given up.“Explained Bloomberg commodity expert Javier Blas. And there are few experts who believe that higher prices than current ones will be seen unless there are further supply disruptions, such as those recently seen in the Red Sea or those that caused the beginning.” Ukrainian war.
Market consensus compiled by Bloomberg suggests 2024 will end the average price per barrel is $81.8.. That is, the average would already be above current prices and far from the more than $91 seen in April, the highest level for the year to date. OPEC’s agreement to reverse progressive production cuts starting next year involves injecting crude into a market that boosts demand without the support of countries like China.
Experts agree that oil prices will only trend downward from now on, with the price of a barrel of Brent projected to be 10% below current levels in two years, given that the average oil price In 2027, the price will be $72.3., reports Bloomberg. That is, in five years the average oil price will fall by 25% after the record prices observed in 2022.
This is also seen in crude oil futures contracts and their maturities. Although prices are already showing a gradual decline over the long term, following the OPEC meeting over the weekend the difference increases. Contracts expiring in July are priced at $81.5, while contracts expiring next December are already below $75 (8% lower).
The oil cartel stressed that its roadmap is subject to change depending on market conditions, so everything announced may remain a simple declaration of intent. However, the fact that there is evidence that some members are unhappy with the cuts (and their phasing out) shows interest in exporting more oil instead of maintaining restrictions. “Downward pressure on prices could increase as OPEC supplies increase and demand slows in 2025,” JP Morgan said.
Debt market reflects relief
In this context Oil prices have already risen by less than 3% as for exercises. Market volatility and uncertainty about future demand are other factors explaining the fall in Brent prices. One thing is clear: falling fuel prices are good news for politicians monetary institutions such as the European Central Bank. Ahead of the meeting, which is expected to see the first interest rate cut in the eurozone, falling oil prices are synonymous with easing inflationary pressures (most of the rise in prices in Europe over the past two years has been linked to energy prices).
This is reflected in the debt market, where purchases are being forced among major government bonds in the secondary market. He US 10-year bonds are back at 4.41% margins are nearly 20 basis points below the ceiling reached last week. In the case of German bonds with the same maturity, the benchmark of the European debt market, the yield fell to 2.57%.