Global crude oil futures experienced a significant decline on Thursday (May 25) following Russia’s announcement that it had blocked further output cuts during a meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+. This development sent shockwaves through the oil market, resulting in a sharp drop in prices.
WTI crude futures saw a decline of $2.51, or 3.38%, settling at $71.83 per barrel, while BRENT crude futures fell by $2.10, or 2.68%, closing at $76.26 per barrel.
Russian Deputy Prime Minister Alexander Novak expressed that Russia does not support additional oil output cuts, in contrast to its agreement last month during the OPEC+ meeting. Notably, some OPEC+ member countries had recently announced voluntary production cuts.
During the April meeting, Saudi Arabia voluntarily reduced its production by 500,000 barrels per day. OPEC+ had previously confirmed a decision made in October 2022 to decrease production by 2 million barrels per day until the end of 2023.
In addition to Russia’s stance, oil prices faced additional pressure due to concerns surrounding a potential US debt default. If the White House and Congress fail to reach an agreement to extend the debt ceiling by June 1, Fitch Ratings warns of a negative impact on the US credit rating. Currently rated AAA, the US faces the possibility of a downgrade if negotiations to raise the debt ceiling remain at a standstill. This could result in a historic default on US debt.
Fitch Ratings highlighted the ongoing political divide that has hindered the US from reaching an agreement on raising the debt ceiling. With the approaching “X-date” of June 1, which marks the potential default date, Fitch predicts that risks will escalate if the debt ceiling is not raised in time. Failure to do so would leave the federal government unable to fulfill its legal obligations.
The combination of Russia’s refusal to support further production cuts and the looming possibility of a US debt default has sparked significant volatility in the oil market. Industry players and investors will closely monitor the developments and outcomes of the OPEC+ meeting on June 4, as well as the progress of debt ceiling negotiations in the United States. These factors will play a crucial role in determining the future direction of oil prices and market stability.
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Friday, May 26, 2023