Japan is now buying Russian crude above the $60 a barrel cap after OPEC+ cut production, sending prices higher.
The country is now the only G7 nation buying Russian crude above the ceiling agreed by the allies after the invasion of Ukraine.
The island nation has almost no fossil fuel of its own and relies on imported gas, coal and oil to maintain its energy levels.
The move is a break from US-led efforts to impose the $60 a barrel cap, but according to The Wall Street JournalJapan got the US to agree to the exception.
Japan is also the only G-7 nation that has not supplied Ukraine with weapons and Prime Minister Fumio Kishida was the last G-7 leader to visit the war-torn country after Russia’s invasion.
Japan is now buying Russian crude oil above the $60 a barrel cap after OPEC+ cut production, forcing prices higher.
The move is a break from US-led efforts to impose the $60 a barrel cap, but according to The Wall Street Journal, Japan was successful in getting the US to agree to the exception. Pictured: President Biden
Oil prices rose on Monday, posting their biggest one-day rise in almost a year, after a surprise announcement by OPEC+ to further cut production rocked markets.
The shock reduction will start in May and last until the end of the year, with OPEC+ saying on Monday that it involves Algeria, Gabon, Iraq, Kazakhstan, Kuwait, Oman, Saudi Arabia and the United Arab Emirates.
It came on top of a decision by Russia, also an OPEC+ member, to extend a 500,000 barrel a day cut.
The oil cartel had already angered Washington in October by cutting production by two million barrels a day.
At the time, the White House accused OPEC+ of “aligning with Russia,” saying the cuts would boost Moscow’s revenue and undermine Western sanctions imposed over its invasion of Ukraine.
Russia’s war against Ukraine stoked inflation by skyrocketing energy prices last year, but oil prices have fallen ever since.
Japan is also the only G-7 nation that has not supplied weapons to Ukraine and Prime Minister Fumio Kishida (pictured) was the last G-7 leader to visit after the invasion of Russia.
OPEC+ said in a statement on Monday that Sunday’s move was a “precautionary measure intended to support the stability of the oil market.”
The Kremlin also defended the decision, saying that “it is in the interest of world energy markets that world oil prices remain at a good level.”
“Whether other countries are happy with this or not is their business,” Kremlin spokesman Dmitry Peskov told reporters.
‘Caught markets off guard’
Sunday’s decision “caught markets off guard” and reversed recent gains in oil prices after fears of a global banking crisis allayed, ActivTrades analyst Ricardo Evangelista said.
“With the fading of the banking crisis and the return of optimism to the markets, the price of a barrel was already showing signs of recovery,” he said.
“The OPEC+ announcement exacerbated this dynamic, driving oil prices back to pre-banking crisis levels.”
The news generated windfall profits for European energy companies and lifted stock markets in London and Paris, though Frankfurt fell.
Shares of Britain’s BP and France’s TotalEnergies rose more than 5 percent in afternoon trading, while Shell rose 4.7 percent.
Oil giants enjoyed record profits last year as crude prices soared.
However, the weekend’s development also stoked concerns that a further rise in consumer prices could put pressure on central banks to raise interest rates further and hit the global economy.
Higher rates for longer?
Central banks have been raising rates in an effort to control high inflation.
“There is real concern that the surprise decision… will lead central banks to keep interest rates higher for longer, due to the inflationary impact, which will hamper economic growth,” said Nigel Green, head of the Financial consultant for Vere Group.
Global stocks had been boosted on Friday after data highlighted declining inflation in the euro zone and the United States.
Green said that the increase in the price of oil “can be expected to increase the cost of production and transportation, reduce the purchasing power of consumers, disrupt supply chains and lead to higher inflation expectations.”
Crude prices have fallen over the past year as concerns about a possible recession caused by higher borrowing costs have offset supply concerns caused by sanctions on Russia over its war against Ukraine.
“The production cut … clearly shows that OPEC was not happy with the movement of the oil price, which had fallen in recent months,” said Tapas Strickland of National Australia Bank.