Commodities Analysis by Investing.com (Barani Krishnan) covering: USD/CNY, US Dollar Index Futures, Brent Oil Futures, Crude Oil WTI Futures. Read Investing.com (Barani Krishnan)'s latest article on Investing.com
Joined by the Saudis, Putin's plan has greater odds of success in a cold winterKeeping Russians happy as elections approach or kicking Joe Biden between the legs over Ukraine? Vladimir Putin reckons he can do both — if prices cross $100 a barrel to limit any damage to the Russian economy from his chokes on supply.
The cumulative Saudi-Russian reduction of 1.3 million barrels per day has several things riding on it. It is de-dollarization to some extent that drove Saudis most recently to join the BRICS trade pact, co-founded by Russia and China along with Brazil and South Africa. While BRICS nations fight many battles against the dollar, they are most driven in trying to break the petro-dollar hegemony: i.e., selling oil in any currency other than the dollar.
Republican candidates for next year’s presidential election have attacked the Biden administration over rising fuel prices, with frontrunner Donald Trump accusing them of neglecting the domestic oil industry. Another tricky issue is cutting enough production to hurt your enemies and not so much to cause problems for top consumers and allies China and India. Neither Russia nor the Saudis have displayed any restraint thus far with their cuts, which seem driven as much by their desire to show the world who’s boss as it is by economics.
The International Energy Agency last year said Russian refiners produced “roughly double the diesel needed to satisfy domestic demand, and typically export half their annual production.” The G7 advanced economies have also tried to impose a price cap on Russian oil sales, while Western countries have increased diesel imports from India and the Middle East.
Both the Saudis and Russians have common goals for their oil production cuts — that is, to maximize price-per-barrel, preferably at the higher end of the $100 range, create a deep enough supply deficit that will make it hard for the market to fall much from there, and cause commensurate pain to their enemies.
But it might not be unrealistic to expect central bankers to play God by intervening in markets when inflation gets out of control.
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