What a fascinating 24-hour span in the world of geopolitics and energy markets. Oil prices spiked above $80 after an enormous crude production cut, and a major economy is reportedly dismissing a recent US-led restriction. Is the international community undermining President Joe Biden, or do world leaders no longer care what the United States thinks now? Since more countries are abandoning the greenback, nations worldwide are ostensibly becoming increasingly indifferent to Washington.
$100 Oil Prices Again?
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, announced a crude output cut of 1.16 million barrels per day (bpd). The voluntary reduction will start in May and last until the end of the year as part of a “precautionary measure” to stabilize global energy markets. Put simply, it does not want a repeat of 2008.
Saudi Arabia will lead the way with a cut of 500,000 bpd, followed by Iraq (211,000), the United Arab Emirates (144,000), Kuwait (128,000), Kazakhstan (78,000), Algeria (48,000), and Oman (40,000). Not all OPEC members are participating in the move, as many states are already producing below the previously agreed levels amid a paucity of output capacity. This comes nearly two months after Moscow announced that it would expand its voluntary cut of 500,000 bpd until the end of 2023.
The US administration was disappointed by the latest decision as the White House claims it has been employing inflation-fighting measures to ease energy prices. “We don’t think cuts are advisable at this moment given market uncertainty, and we’ve made that clear,” a spokesperson for the National Security Council said in an April 2 statement.
Indeed, West Texas Intermediate and Brent crude oil prices have erased their post-invasion gains, primarily driven by growing recession fears. Black gold plunged to as low as $67 late last month in the fallout of the banking turmoil, but now market analysts anticipate prices could flirt with $100 again, especially if Chinese demand returns to 16 million bpd in the second half of 2023 and Russian output slows in the coming months due to sanctions.
Wait a minute. Sanctions? The Japanese government doesn’t care about any sanctions!
More Oil for Old Yen
The Wall Street Journal published a bombshell article on April 2, reporting that Japan has bought Russian crude oil above the $60-a-barrel limit. Last year, the Group of Seven agreed to this price cap on Russian seaborne crude oil that would slash Moscow’s income from its petroleum products and prevent a spike in oil prices. But the newspaper reported that the United States authorized an exemption for Japan because it mainly relies on fossil fuel imports to power the world’s third-largest economy. In the first two months of 2023, Tokyo acquired about 748,000 barrels of Russian oil for $70 per barrel.
Tokyo also buys Russian liquefied natural gas, but the year-to-date volumes have been small, representing approximately one-tenth of the nation’s imports. Most of these come from the Sakhalin-2 in Russia’s Far East. Interestingly enough, two Japanese corporations – Mitsubishi Corp. and Mitsui & Co. – possess a 22.5% stake in the pipeline and received support from the Japanese government to maintain their ownership size amid the military conflict in Eastern Europe.
Japanese leaders downplayed the report, with chief government spokesman Hirokazu Matsuno telling the newspaper that it still disapproves of Russian President Vladimir Putin’s invasion of Ukraine. “We absolutely will not allow Russia’s outrageous act, and we are imposing strict sanctions on Russia in order to stop Russia’s invasion as soon as possible,” he said.
Every time a major development transpires in the economy, this question always pops up: What now? Rampant price inflation. Baby formula shortages. A banking crisis. Now that the cartel is slashing production, Japan is circumventing sanctions, and many nations are kicking the US dollar habit, this is still a critical question. The consensus on Wall Street is that oil prices could surge to as high as $100 per barrel by the year’s end. This, of course, will weigh on gasoline costs and the broader inflation campaign. Once again, the rest of the world is laughing at the current administration, and there is not a single thing the United States can do because the world’s largest economy can no longer afford to employ its instruments of destruction.
All opinions expressed are those of the author and do not necessarily represent those of Liberty Nation.
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