Premarket stocks: What the OPEC cuts mean for Putin and Russia

New York (CNN) Some of the world’s biggest oil exporters shocked markets at the weekend by announcing they would cut oil production by more than 1.6 million barrels a day.

OPEC+, an alliance between the Organization of the Petroleum Exporting Countries (OPEC) and a group of non-OPEC oil-producing countries, including Russia, Mexico and Kazakhstan, said on Sunday that the cuts would start in May and run until the end of the year. The news sent both Brent crude futures – the global oil benchmark ̵[ads1]1; and WTI – the US benchmark – up around 6% in trading on Monday.

OPEC+ was formed in 2016 to coordinate and regulate oil production and stabilize global oil prices. Its members produce around 40% of the world’s crude oil and have a significant impact on the global economy.

What it means for Putin: OPEC+’s decision to cut oil production could have major consequences for Russia.

After Russia invaded Ukraine last year, the US and UK immediately stopped buying oil from the country. The European Union also stopped importing Russian oil sent by sea.

Members of the G7 – an organization of leaders from some of the world’s largest economies: Canada, France, Germany, Italy, Japan, the United Kingdom and the United States – have also imposed a price ceiling of $60 per barrel on oil exported by Russia, keeping the country’s income artificially low . If oil prices continue to rise, some analysts have speculated that the United States and other Western nations may have to loosen the price ceiling.

US Treasury Secretary Janet Yellen said on Monday that the changes could lead to a reassessment of the price ceiling – but not yet. “Obviously, it’s something that, if we’ve decided it’s appropriate to visit, could change, but I don’t see that being appropriate at this point,” she told reporters.

“I don’t know that this is significant enough to have any impact on the appropriate level of the price cap,” she added.

Russia also recently announced that it will cut oil production by 500,000 barrels per day until the end of this year.

Just last week, Putin admitted that Western sanctions could be a blow to Russia’s economy.

“The illegitimate restrictions imposed on the Russian economy may actually have a negative impact on it in the medium term,” Putin said in televised remarks on Wednesday reported by state news agency TASS.

Putin said Russia’s economy had grown since July, thanks in part to stronger ties with “the countries of the east and south,” likely referring to China and some African countries.

Russia, China and Saudi Arabia: The OPEC+ announcement came as a surprise this week. The group had already announced it would cut two million barrels a day in October 2022, and Saudi Arabia previously said its production quotas would remain the same until the end of the year.

“The move to reduce supply is quite strange,” Warren Patterson, head of commodity strategy at ING, wrote in a note on Monday.

“Oil prices have partially recovered from the turmoil seen in financial markets following developments in the banking sector,” he wrote. “Meanwhile, oil fundamentals are expected to tighten as we move through the year. Prior to these cuts, we were already expecting the oil market to see a fairly significant deficit in the second half or 2023. Clearly, this will be even bigger now.”

Saudi Arabia stated that the cut is a “precautionary measure aimed at supporting oil market stability,” but Patterson says it is likely to “lead to further market volatility” later this year as less available oil contributes to inflationary performance . .

Still, the changes signal shifting global alliances with Russia, China and Saudi Arabia over oil prices, analysts at ClearView Energy Partners said. Higher oil could help Russia pay for the war against Ukraine and boost Saudi Arabia’s revenue.

The White House, meanwhile, has spoken out against OPEC’s decision. “We do not believe cuts are advisable at this time given market uncertainty — and we have made that clear,” National Security Council spokesman John Kirby said Monday.

– CNN’s Paul LeBlanc and Hanna Ziady contributed to this report

JPMorgan’s Jamie Dimon warns banking crisis will be felt for “years to come”

The crisis sparked by the recent collapses of Silicon Valley Bank and Signature Bank is not over yet and will ripple through the economy for years to come, JPMorgan Chase CEO Jamie Dimon said Tuesday.

In his closely watched annual letter to shareholders, the CEO of the largest bank in the United States outlined the widespread damage the financial system’s collapse had on all banks and urged lawmakers to think carefully before responding with regulatory policies.

“These failures were not good for banks of any size,” Dimon wrote, responding to reports that major financial institutions benefited greatly from the collapse of SVB and Signature Bank as cautious customers sought safety by moving billions of dollars worth of money to large banks .

In a note last month, Wells Fargo banking analyst Mike Mayo wrote “Goliath is winning.” JPMorgan in particular, he said, benefited from more deposits “in these less certain times.”

“Any crisis that hurts Americans’ confidence in their banks hurts all banks — a fact that was known even before this crisis,” Dimon said. “While it is true that this banking crisis ‘benefited’ larger banks because of the influx of deposits they received from smaller institutions, the notion that this meltdown was good for them is somehow absurd.”

The failures of SVB and Signature Bank, he claimed, had little to do with the banks going beyond the regulations, and that SVB’s high interest rate exposure and large amounts of uninsured deposits were already well known to both regulators and the market at large.

Current regulations, Dimon argued, may actually lull banks into complacency without addressing real system-wide banking problems. Complying with these regulations, he wrote, has just “become a huge, mind-numbingly complex task of crossing t’s and dotting i’s.”

And while regulatory changes will be a likely result of the recent banking crisis, Dimon argued that “it is extremely important that we avoid knee-jerk, knee-jerk or politically motivated responses that often result in achieving the opposite of what people intended.” Regulations, he said, are often put in place in one part of the framework, but have negative effects in other areas and make things more complicated.

The Federal Deposit Insurance Corporation has said it will propose new rule changes in May, while the Federal Reserve is currently conducting an internal review to assess what changes should be made. Lawmakers in Congress, such as Democratic Senator Sherrod Brown, have hinted that new legislation meant to regulate banks is in the works.

But, Dimon wrote, “the debate should not always be about more or less regulation, but about what mix of regulations will keep America’s banking system the best in the world.”

Eminent domain to combat climate change?

Dimon’s letter to shareholders touched on a number of pressing issues, including climate change. “The window for action to avert the costliest impacts of global climate change is closing,” he wrote, expressing his frustration at slow growth in investment in clean energy technologies.

“Permissive reforms are desperately needed to allow investment to be made in any timely fashion,” he wrote.

A way to do it? “We might even need to invoke eminent domain,” he suggested. “We’re simply not getting the adequate investment fast enough for grid, solar, wind and pipeline initiatives.”

Eminent domain is the government’s power to take private property for public use, as long as fair compensation is provided to the property owner.