Fri. Apr 26th, 2019

If OPEC wins, they all win

If OPEC wins, they all win

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Oil prices continue to rise and, in the case of Brent, a benchmark for Europe, today reached $ 71 a barrel, its highest level in the last five months. Texas is above $ 63. Since the beginning of 2019, crude oil has risen by 31.5%, far surpassing the 20% drop registered in 2018.

The main reason for this slow but progressive increase in prices throughout the year is the production cut that OPEC approved (Organization of Petroleum Producing Countries) on December 7 last. Specifically, it decided to stop pouring 800,000 barrels a day into the markets, a figure to which we must add another 400,000 barrels that also committed to cut their partners (Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan and South Sudan).

OPEC production in February was 30,549 million of barrels per day, compared to 30,770 million in January and 31,591 million in December 2018. The average price of a barrel of OPEC crude has risen last week to 69.02 dollars.

The objective pursued by OPEC and its allies (the so-called OPEP +) was to force a rise in oil prices, since, for example, Brent, had dropped from $ 86 in October to $ 50 a few days before the end of the year.

Since these cuts came into force in early January, crude oil has only risen, reaching 61 dollars in the first week of that month and the 66 dollars in mid-February, the level he maintained in March. April started at 69 dollars and at this time close to 71.

These increases in crude oil prices confirm the success of the strategy of OPEC and its allies. However, the United States, the world's largest oil producer, also wins, as its fracking industry is more profitable the more expensive the crude oil is. In fact, the USA continues to increase its production, which stings in the bosom of OPEC, although the higher income recorded by its 14 partners cure almost all wounds and that between 90 and 95% of their income comes from crude oil.

Iran, Libya and Venezuela are exempt of the new cuts for their political problems. The Islamic Republic has reduced its production to 2.74 million barrels from 3.55 million in 2018. Libya remains in the vicinity of 900,000 barrels since 2017 and Venezuela has also suffered a significant decline from 1.35 million of barrels in 2018 to one million barrels today.

Fear of higher price increases

On the resurgence of civil war in Libya, the experts point out that it will not have a very serious repercussion in the oil market, since it is a conflict that is discounted because it has been dragging on for years. It should also be noted that the oil production of this North African nation is only 3% of the total of OPEC.

But how can this new Libyan crisis affect Spain? Nereida González, analyst of the markets area of ​​AFI (International Financial Analysts), pointed out that "the main impact for Spain will come from a possible rise in the price of oil if the conflict increases, and if the rest of the OPEC countries decide to maintain the policy of production cuts ». In any case, the rise in the price of crude oil will continue to be "an element of attention for all investors" and pointed out that «There are several risk points in the environment that can focus attention more »than Libya (for example, the complex political situation in neighboring Argen- lia).

For his part, the professor of the Master in Stock Market and Financial Markets of the IEB (Institute of Stock Market Studies), Javier Niederleytner, has highlighted that the oil market is volatile and very sensitive to crises like this one. In the opinion of this expert, episodes like this «Serve as an excuse for OPEC to raise the price». In this regard, he recalled that for the countries of the well-known cartel "a reasonable price is 80 euros" and expected that Brent oil will move in a range between 60 and 80 dollars. For this analyst, the greatest "effect will be on the citizen's pocket".

Asked how companies such as Repsol and Cepsa will behave in the markets during the next few days, Nereida González has pointed out that she may have «A positive impact on the energy sector in variable income ». However, he added that companies with a presence in this country "could have a lower upward path".

Niederleytner has also pointed to two important factors to consider: the very important role of U.S in this market through fracking with greater control over this raw material and its influence on inflation or growth. The second factor, for this analyst, is the upcoming IPO of the largest oil company in the world, the Saudi Aramco. Before, Bloomberg informs, it will debut in the bond market with an issuance of between 10,000 and 15,000 million of dollars.


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