The instability in the markets caused by the invasion of Ukraine is still being felt, especially in fuels, which led the government to maintain, at least until April 17, measures to mitigate the rise in prices, under more via the reduction of the ISP and the suspension of the CO2 tax update. The reduction in the tax burden corresponds to 34 cents per liter for both petrol and diesel, the average price of which this week was 1,494 euros per liter of diesel and 1,693 euros per liter of petrol. Compared to the beginning of the year, petrol is 1.4% more expensive, but diesel is 8.6% cheaper.
In concrete terms, the Portuguese pay 14 cents cheaper for diesel than on January 2, which means a saving of seven euros when filling a 50-liter tank. Petrol, on the other hand, costs 2.3 cents more per litre, which equates to 1.15 euros more for a 50-litre fill-up.
Compared to average prices a year ago, according to data from the General Directorate of Energy and Geology, diesel is 22.5% cheaper, which corresponds to 43.3 cents less per liter than the 1,927 euros it cost in the week of April 4, 2022. Petrol then cost 1,989 euros per liter and now costs 29.6 cents less per liter. It is a saving of 14.5%.
Next week, diesel and gasoline prices are expected to undergo a slight upward revision, with diesel and 1.5 cents for regular 95 gasoline rising by 1 cent per liter. This is despite oil prices rising more than 6% at the beginning of the week, in response to the announced production cuts of more than a million barrels per day in OPEC countries and their allies from May, but which in the meantime stabilized at around $85. In addition to the previous cut already in effect, we are talking about a total reduction in crude oil production of 3.66 million barrels per day, equivalent to 3.7% of global demand.
The big unknown now is how the markets will adjust to this new production cut and especially its effects on inflation, as the fall in prices – Brent, which serves as a benchmark in Europe, was expected to have more or less ended its downward trend consolidated since July last year, but the truth is that last year reached as much as $125 a barrel, the highest value in the past 52 weeks, as it reached into the $70 mark — would help the global economy emerge from the inflationary crisis faster.
For Ricardo Marques, an analyst at the IMF, part of the explanation for the cuts is related to weaker-than-expected demand. “Looking at the industry activity indices in China and the US presented earlier this week, it is easy to conclude that we are not in a strong demand phase. Global oil inventories have risen in recent months and are at a high since 2021, this This is one of the explanations for the price drop in the month of March,” he says.
Looking ahead, everything will depend on the actual evolution of consumption and the rigor with which OPEC+ cuts are implemented. “We should not forget that in November OPEC announced a production cut of two million barrels per day and prices have fallen since then, even though there were people who thought otherwise at the time,” he says.
Paulo Rosa, senior economist at Banco Carregosa, recalls that Saudi Arabia argued the need to support market stability to justify the new voluntary production cuts, but that not all countries are on an equal footing. “The agreement signed by OPEC+ strengthened the stance of its member countries and most likely promised additional future cuts when the price of a barrel of oil falls significantly below $80. However, if Saudi Arabia and other countries of the Arabica Peninsula are major producers, it may be relatively easier to live with a reduction in oil production, for countries with smaller production, where quantity appears to be more important than price, the incentive on their part to not meet the reduction commitments is growing,” he says .
On the other hand, if it is true that the reduction in production will exert upward pressure on prices in the coming weeks, it is no less certain that this increase “will always depend on the evolution of the world economy, especially on the major economic blocs, the US, the Union Europe and China. The increase could be limited, or even turn into a devaluation, if economic data deteriorates, as the likelihood of a recession in the US increases.” But a recession in the US, he said, could be synonymous with disagreements within OPEC+.
“If prices reverse the rise of recent days, OPEC+ has implicitly reinforced its willingness to cut production again, exacerbating the dilemma within the organization between member countries that focus more on price and those that prioritize quantity as the variable. see,” he says. One thing is guaranteed: this deal “promises to complicate the work of the Fed and the ECB in an effort to re-anchor inflation expectations to the target of 2% price stability,” emphasizes Paulo Rosa.
Henrique Tomé and Vítor Madeira, analysts at XTB, believe that the possible increase in oil prices will not exacerbate the inflationary situation, as consumption slows down due to central bank monetary policies discouraging demand from economic agents. “Despite the reduction in oil production, the current economic situation does not support the scenario of rising prices,” they say.
On the other hand, China’s role in this matter should be taken into account. “When the Chinese economy started up again, it was expected that there would be a greater demand for oil, and that ultimately did not happen. However, the Chinese economy is not slowing down as much as the other Western economies and if economic activity picks up again , there may be new demand from China that could affect an increase in prices,” they acknowledge.
It is certain that this is always bad news for the domestic consumer. “It will be another variable to exacerbate the Portuguese macroeconomic situation, as Portugal is highly dependent on fossil fuel imports and economic actors should be penalized again,” they say. Paulo Rosa agrees: “An increase in the price of oil is negative for our country, slowing down economic growth and potentially accelerating inflation. An increase in the price of oil in euros is synonymous with higher prices at the gas stations”.
Source: DN
