Bank crisis! Feds raise interest rates again! OPEC+ cuts production! Dollar slumps! All of this happened within the last month. “The sky is falling, the sky is falling”, said Chicken Little.
March 10th Silicon Valley Bank failed. Oil prices started falling.
March 22nd Feds raise interest rates to just under 5%.
April 2nd OPEC+ cuts production 1.66 million barrels per day. This brings the total decrease in production including 2 million barrels per day decrease last October 2022 to a grand total of 3.66 million barrels per day.
Countries and their latest production decrease (barrels per day)
Saudi Arabia 500,000
Iraq 211,000
United Arab Emirates 144,000
Kuwait 128,000
Kazakhstan 78,000
Algeria 48,000
Oman 40,000
Gabon 8,000
Russia 500,000
These are voluntary cuts and not all OPEC+ members are joining the move as some are already pumping well below levels due to a lack of production capacity. According to the Saudi Energy Minister Prince Abdulaziz bin Salman the decrease in production is a “precautionary move” aimed at stabilizing the oil market. The cuts will start in May until the end of the year. These cuts may also raise gasoline prices at the pump 26 cents per gallon in addition to the usual summer increases when refineries change the gasoline blend for the summer driving season. The intended oil price goal is around $90 a barrel.
The US and Saudi relationship has been declining and has been described as “tense”. Last fall Biden asked the Saudi government to increase output; however, OPEC+ did the opposite by cutting production by 2 million barrels per day. The Saudi government now has closer ties to Moscow and Beijing. They just invested billions of dollars in China’s downstream petrochemical industry.
On April 4th the value of the US Dollar decreased to a two-month low caused by weak economic data. The dollar is forecasted to continue to decrease through the end of the year. This will enable US firms to sell products and services in foreign markets at a more competitive price. Also, the value of gold is rising as are other precious metals such as silver.
As crude inventories fall, oil prices generally will rise. On April 4th it was reported that the Strategic Petroleum Reserve (SPR) inventory dropped for the first time in twelve weeks, losing 400,000 barrels to reach 371.2 million barrels; the lowest amount of crude oil since December 1983. The crude and natural gas prices on Wall Street are volatile and will begin to fluctuate; however, on April 24th the prices started rebounding.
The US is not the only country feeling the cuts. Asia was hit with higher crude prices, 30 cents per barrel, from Saudi Aramco, the Saudi state-owned oil company.
The energy industry goes through these cycles whenever there is a surplus, economic instability, etc. Unfortunately, we are at a disadvantage in controlling the situation as we are not a member of OPEC+. They do and will control the market. All we can do is lobby for control of what happens in the US. This is why the US government should allow energy companies to expand their oil and gas exploration.
As in the story of Chicken Little, have courage and know the sun will shine tomorrow even when it feels like the sky is falling.
Oil & Gas Industry Blog: Vive La Frack! 