The world’s biggest oil exporters will benefit from the surprise OPEC+ production cut, but if oil prices move higher from here and reach $90 or even $100 a barrel, as some analysts predict, oil importers will start to feel the pain.
Brent Crude bounced back to $85, and WTI Crude hit $80 per barrel again, as the latest 1.66 million bpd of production cuts from nearly half of the OPEC+ members from May through December are expected to tighten the market in the second half of the year. Analysts, who had just slashed price forecasts in the wake of the banking sector jitters in mid-March, raised their price estimates and started talking about $100 oil again.
Oil at $90 and $100 will hit the economies of the large oil importers. A renewed rise in energy prices could keep inflation in the U.S. and Europe stubbornly high and further complicate interest-rate policies of the central banks, which have just signaled that the end of the hike cycle may be near.
In terms of state finances, large oil importers will not be equally hit by higher oil prices.
The United States will see higher gasoline prices, but it will not be the biggest loser, at least financially, from the OPEC+ cuts. In the U.S., the loser is the Biden Administration, which has spent nearly a year trying to persuade Americans that the President has helped to lower prices at the pump, which hit a record high in early June when oil prices were at $100 per barrel in the spring of 2022 following the Russian invasion of Ukraine.
“The oil market has had a few days to digest the OPEC news and speculate about the reason. This has led to the price of oil stabilizing for now,” Andrew Gross, AAA spokesperson, said this week, “but the cost of oil accounts for more than 50% of what we pay at the pump, so drivers may not catch a break at the pump any time soon.”
The national average gasoline price hit $3.54 per gallon this week, the highest level since Thanksgiving, said Patrick De Haan, head of petroleum analysis at fuel-saving app GasBuddy.
Increases will likely continue for the next couple of weeks with a climb to around $3.65/gal likely for now, he added.
In terms of a hit to government finances from the OPEC+ cuts, the biggest losers will be Asia’s developed economies heavily dependent on oil imports, as well as emerging markets in south and Southeast Asia, which not only rely on imported energy but also have weak fiscal balances. Those are the mature economies of Japan and South Korea, and the emerging markets India and Pakistan in south Asia, as well as Argentina, Turkey, and South Africa, according to Pavel Molchanov, managing director of private investment bank Raymond James.
The OPEC+ cuts and a subsequent run in oil prices to $100 is “a tax on every oil importing economy,” Molchanov told CNBC.
“It’s not the U.S. that would feel the most pain from $100 oil, it would be the countries that have no domestic petroleum resources: Japan, India, Germany, France,” he added.
According to Henning Gloystein, director of Eurasia Group, India’s consumption – currently at records – could also suffer in case prices rise further because even the discounted Russian crude, which India buys en masse, would see higher prices if international benchmarks make a run at $100.
Traders involved in Russian oil trades told Reuters this week that after the OPEC+ cuts announcement, the price of Russia’s flagship Urals grade topped the $60 per barrel price cap level set by the G7.
“If oil goes up further, even the discounted Russian crude will start to hurt India’s growth,” Gloystein told CNBC.
Importing countries with weak currencies and weak state finances will also feel the pain due to the fact that oil is priced in U.S. dollars, analysts say.
