Brent loses $80 a barrel as OPEC+ fails to raise prices

The price of oil fell sharply after a meeting of the cartel of crude exporting countries. Brent fell below $80 a barrel on Monday, losing more than 3 percent and amid confidence that voluntary production cuts will end at the end of 2024. In fact, oil futures reflect lower prices as maturities are rising, while expert consensus predicts a decline. of over 10% from now until 2027.

The Organization of the Petroleum Exporting Countries and its allies, including Russia (OPEC+), have decided to maintain their reducing production by 2025. However, the voluntary cuts implemented by some of its members could end as early as October this year. That sent oil prices down to their lowest levels since February this year and defied expectations of a further price hike: the West’s inflationary fears and the goal that major oil producers had been striving for.

“After the relentless pursuit of $100 per barrel of oil, The OPEC+ cartel has practically given up.Bloomberg commodities expert Javier Blas explained. And there are few experts who believe that higher prices than today will be seen unless there are further disruptions in supply, such as those seen recently in the Red Sea or those that caused the start.” Ukrainian war.

The market consensus compiled by Bloomberg suggests that 2024 will end the average price per barrel is $81.8.. That means the average would already be above current prices and far from the $91-plus seen in April, the year-to-date high. OPEC’s agreement to reverse gradual production cuts starting next year involves injecting crude into a market that is growing demand without the support of countries such as China.

Experts agree that oil prices will only trend downward from now on, with the price of a barrel of Brent expected 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 price of oil will fall by 25% after the record prices seen in 2022.

This is also seen in crude oil futures and their maturities. Although prices are already showing a long-term gradual decline following the OPEC meeting over the weekend the difference is increasing. 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 whatever it has announced can remain a mere statement 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 the restrictions. “Downward pressure on prices could increase as OPEC supplies increase and demand slows in 2025,” JP Morgan said.

The debt market reflects the easing

In this context The price of oil has already risen by less than 3% as for the exercises. Market volatility and uncertainty about future demand are other factors explaining the decline 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, where the eurozone’s first interest rate cut is expected, lower oil prices are synonymous with easing inflationary pressures (most of the price rise in Europe over the past two years has been related to energy prices).

This is reflected in the debt market, where purchases are being forced among the main government bonds on the secondary market. He US 10-year bond returns to 4.41% spreads are nearly 20 basis points below the ceiling hit 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%.