The Esso Fawley Oil Refinery, operated by Exxon Mobil, is seen in Fawley, UK, Thursday May 14, 2020.
Luke MacGregor | Bloomberg | Getty Images
The surprise production cut by OPEC and its allies has pushed up oil prices – and analysts say major oil importers like India, Japan and South Korea will feel the most pain if the prices hit $100 a barrel, as some predicted.
On Sunday, OPEC+ announced a production cut of 1.16 million barrels per day, a move oil markets weren’t expecting.
“It’s a tax on every oil-importing economy,” said Pavel Molchanov, managing director of private investment bank Raymond James.
“It’s not the United States that would suffer the most from $100 oil, it would be the countries that don’t have national oil resources: Japan, India, Germany, France. . to name just a few of the great examples,” Molchanov said.
Voluntary cuts by oil cartel countries are expected to begin in May and last until the end of 2023. Saudi Arabia and Russia reduce oil production by 500,000 barrels per day until the end of this year, while other OPEC members like Kuwait, Oman, Iraq, Algeria and Kazakhstan are also cutting production.
Brent crude futures were last trading up 0.57% at $85.41 a barrel, while US West Texas Intermediate futures were up 0.5% at 81.11 $ per barrel.
Countries highly dependent on oil imports
“The regions most affected by the reduction in oil supply and the resulting spike in crude prices are those that are highly dependent on imports and have a high share of fossil fuels in their primary energy systems,” said Eurasia Group Director Henning Gloystein.
If oil continues to rise, even discounted Russian crude will start hurting India’s growth.
Director, Eurasia Group
“Although they still benefit from cheap Russian gas, they are already suffering from high coal and gas prices,” Gloystein said.
“If oil continues to rise, even discounted Russian crude will start hurting India’s growth.”
Oil is the most important source of energy in Japan, and represents about 40% of its total energy supply.
“With no significant domestic production, Japan is heavily dependent on crude oil imports, 80-90% of which come from the Middle East region,” said the International Energy Agency said.
Similarly for South Korea, oil is most of their energy needsaccording to the independent research company Enerdata.
“South Korea and Italy are more than 75 percent dependent on imported oil,” Molchanov said.
Europe and China are also “highly exposed”, according to Gloystein.
However, he added that China’s exposure was slightly less due to domestic oil production, while Europe as a whole relies mostly on nuclear, coal and natural gas rather than fossil fuels in their primary energy mix.
Impact on emerging economies
Some emerging markets that “don’t have the foreign exchange capacity to support these fuel imports” will be negatively impacted by the $100 price, Molchanov said. He named Argentina, Turkey, South Africa and Pakistan as potential economies that will be affected.
Sri Lanka, which does not produce oil domestically and is 100% dependent on imports, is also very likely to be hit harder, he said.
Cooling towers emitting steam at the Leuna Refinery and Chemical Industrial Complex, which houses refineries and plants operated by TotalEnergies in Leuna, Germany, Tuesday, June 7, 2022.
Krisztian Bocsi | Bloomberg | Getty Images
“Countries with the least foreign currency and which are importers will be the most affected because the price of oil is in US dollars,” said Energy Aspects founder Amrita Sen, who added that the cost of imports would increase further. if the greenback appreciates.
$100 a barrel will not be permanent
However, while $100 a barrel may be on the horizon, the top price may not stick around for long, Molchanov said, adding that it won’t be “the permanent plateau.”
“Long term, prices could be more in line with where we are now” – in the region of around $80 to $90 or so, he said.
“Once crude hits $100 a barrel and stays there for a bit, that’s an incentive for producers to really ramp up production again,” Gloystein said.