VIENNA - Oil-producing countries have agreed to continued cuts in production in a bid to “shore up flagging prices”.
Saudi Arabia announced cuts of a million barrels per day in July and Opec+ said targets would drop by a further 1.4 million barrels per day from 2024.
Decisions by Opec+, which accounts for around 40% of the world’s crude oil, can have a major impact on oil prices.
US President Joe Biden had encouraged producers to turn on the taps to keep prices low.
what oil production cut means for the West
The decision by Opec+ members to cut oil production by 2 million barrels a day has prompted fears of rising prices and an exacerbation of global tensions.
The announcement triggered an immediate jump in oil prices and threatens to bring higher costs for consumers in the West. It even forced President Biden to consider releasing further supply into the market from the US Strategic Petroleum Reserve.
“The world consumes up to 100 million barrels of oil a day, so taking 2 million off the market would have a noticeable effect,” said NPR.
What is Opec+?
Opec+ is a cartel of 24 oil-exporting countries, which includes Saudi Arabia and Russia. The group was founded in 1960 “with the aim of fixing the worldwide supply of oil and its price”.
Opec itself is formed of 13 states, which vary in prominence from the major economies of the UAE and Saudi Arabia, to the smaller oil-rich states such as Gabon, Angola and the most recent to join, in 2018, Congo.
The cartel expanded in 2016, “when oil prices were particularly low”, and 11 non-Opec members were added to form Opec+.
The group’s headquarters is in Vienna, Austria, where it now meets every six months to discuss and fix global oil exports. Together, the cartel accounts for roughly 40% of the world’s crude oil exports, allowing it to strategically adjust the price by limiting or increasing supply.
Why is it cutting oil production?
The cartel is acting upon its mandate to monitor and control oil prices around the world. Having voiced its concern regarding the falling price of oil, the move to cut production is an “aggressive attempt to raise oil prices”, according to the Financial Times. It reported that Saudi Arabia wants “to ensure an oil price of about $100 a barrel”.
Despite reaching $140 a barrel in March, the price of crude fell to nearly $80 in September. Following this week’s announcement, the price per barrel immediately jumped by around 2%, to sit at $93.80.
What does it mean for the West?
The cartel’s “surprise deep oil production cuts” will “benefit Russia most”, according to Reuters, while at the same time “tightening supply to the West already suffering from record energy prices”. A reduced supply will “inevitably lead to soaring petrol and diesel prices”, said the Daily Mail, and will “further aggravate inflation”.
