The Organization of the Petroleum Exporting Countries Plus (OPEC+) announced a major reduction in oil output.
According to the statement, OPEC+ countries would limit their oil output by 2 million barrels per day. Oil and gas costs would surge if a cut of this volume were undertaken.
The globe is already being hammered by a steady rise in gas and oil costs. The situation will escalate due to the summit of OPEC+ oil-producing countries.
US President Joe Biden has set a target to reduce petrol prices in preparation for the mid-term elections. However, due to the ruling, the United States and Saudi Arabia are anticipated to dissent.
According to the White House, the action is “shortsighted,” and the administration will review it.
They added that they would “deliver another 10 million barrels from the Strategic Petroleum Reserve to the market next month, continuing the historic releases the President ordered in March.”
OPEC+ was formed in 2016 with 13 OPEC members and 11 non-OPEC members. The group reaffirmed its decision, citing turbulent markets and the world economy’s poor oil market circumstances.
The impact of the gas curtailment has yet to be realized, and members are unsure what it will entail for the worldwide market.
Every day, 100 million barrels of oil are consumed throughout the world. As a result, reducing 2 million barrels should have a noticeable impact, depending on how the oil produced by OPEC+ members is allocated.
The motive for the production cutbacks
While it is explained as a precautionary measure taken by the countries in reaction to current market conditions, it is regarded as Saudi Arabia’s tactic to raise oil and gas prices to benefit the country.
The barrel price has risen to $120 after falling by $90 in September. As a result of reducing supply, the price per barrel would further rise.
Furthermore, Energy Aspects’ Yasser Elguidi stated that Saudi Arabia is seeking output cuts to drive barrel prices beyond the $100 mark. The action will tighten the market and reduce supply, causing prices to rise.
So naturally, the public was caught off guard by OPEC’s proposal.
“OPEC is trying to shock and awe with a big production cut number that is going to get people’s attention. And they’re trying to support prices to keep them from falling further,” said Elguidi.
Elguidi went on to say that OPEC’s decision represents a reversal of its current practices. Because of the lockdowns, the firm was forced to reduce output during the pandemic.
However, when demand rises, the reduction in output runs counter to the trend.
Others see this as the group rejecting Biden’s request. When the US president visited Saudi Arabia, he requested more output. However, given the problems between the two nations, the action can be perceived as Saudi Arabia taking revenge.
It should be noted that Biden partially attributed responsibility for journalist Jamal Khashoggi’s killing to Saudi Crown Prince Mohammed bin Salman.
ClearView Energy Partners’ Jacques Rousseau said, “It seems clear that this is not the outcome that Biden wanted when he went over to Saudi Arabia looking for more oil. And so that could definitely be an issue going forward.”
“About a week ago, they effectively came and asked OPEC to cut production by a million barrels a day. I think that’s a recognition that they are going to lose some volume going forward, and whatever they’re going to lose in volume, they need to make up for in price,” added Elguindi.
Photo Credit: Reuters
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