OPEC
OPEC or the Organization of Petroleum Exporting Countries is a group of big oil producers primarily from the Middle East who banded together in 1960. Their goal is to dictate the terms of the oil trade. And what started with just 5 countries is now 13 members strong. But there’s also OPEC+ which came about in 2016. This includes 10 additional members such as Russia. And together, these 23 countries produce 40% of the world’s oil.
Facing sluggish demand, Saudi Arabia will effect a voluntary reduction of 500,000 barrels per day (bpd), Iraq 211,000 bpd, United Arab Emirates 144,000 bpd, Kuwait 128,000 bpd, Algeria 48,000 bpd, Oman 40,000 bpd, Kazakhstan 78,000 bpd, and Gabon 8,000 bpd.
The production cuts by OPEC countries, which account for one-third of the global oil production, will begin in May 2023 and last for the entire calendar year. Total cut is around 1.16 million bpd. That apart, Russia has also announced a voluntary adjustment of 500,000 bpd to last until end-2023.
OPEC has said the cuts are a precautionary measure aimed at supporting the stability of oil markets. Analysts said the cuts are intended to mitigate the impact of a sluggish global economy and the banking crisis in the US on crude oil prices. These had weakened crude oil prices significantly ($67-68/barrel). Following the announcement of the cuts, crude oil prices are now at December 2021-January 2022 levels ($85 per barrel). Crude had hit $139 per barrel in March 2022.
Despite solid Asian demand growth, the market has been in surplus for three straight quarters.
Post Announcement Of Oil Output
After the crude oil exporting cartel announced production cuts, the global benchmark Brent rose by more than 5 per cent to hit $84.13 per barrel, one of the sharpest price rises in the past 10-11 months. Analysts predict a crude oil price of $95-100 per barrel by December 2023 and Q1 2024.
Analysts have warned that the cuts would impact prices thereby further exacerbating inflationary pressures on the global economy. For India, this would mean higher oil import bills and this could stoke inflation if the government resumes the daily retail auto fuel price revision mechanism. If the government continues to freeze retail prices, then the oil marketing companies will again witness huge under recoveries.
They’ve seen that the prices have fallen by over 40% in the past year. They know that an economic slowdown is inevitable. So they’re trying to push prices up and snag profits while demand is still holding steady. To tweak a popular phrase, they’re trying to “make hay before the sun sets”.
Indian Markets
In the current times the Indian markets are seen getting back on track. With the assistance of the banking sector of India the Indices have gained well in the month of April. The Nifty50 has gone up to 17800 from 17000 levels. The Bank Nifty has came to 42200 Rs from 39800 Rs. Hence the markets are suggesting a bull run to cross the 18600 levels. However one cannot expect the same given the economic crisis around the world. In the recent announcements the I.T companies around the world are laying off their employees. The Major firms like Apple, Amazon are also indulging in the lay off strategy to cut down their expenses in the time of slow business growth.
Even the Indian I.T companies like Infosys have been laying off employees. Hence On one hand there is the Adani Scandal that is investigated by SEBI and on other hand the layoff suggests a slow growth of business. This directly points out that this year can also be a shock for the businesses given the lack of demand in the markets.
Banking Sector
The saviour in this time has been the banking sector. The Indian banking sector has been producing good returns for the investors in current items. After all the stocks getting beaten up due to the rate hikes, this time around the MPC announcements showed a pause in the same. This suggests that the banking sector is in deep fear of failure. The recent examples of the same are the Signature Bank, Silicon Valley Bank and others. However the Indian banks are winning this race so far in comparison to the banks across the world. Hence one should be focused on the banking sector in the current run. If trading is essential then the first priority for the traders should be the banking stocks or the banking index.
For further market flow we need to see how the markets are reacting to the expiry of next week and then we can decode whether the emirate is really in an uptrend and can they go on to beat the 18000 milestone again to reach the all time high levels.
