- By Nick Edser
- Business Reporter, BBC
image source, Getty Images
Several of the world’s largest oil exporters have announced surprise production cuts, so prices are expected to rise.
The decision was made by members of the Organization of the Petroleum Exporting Countries (OPEC), which accounts for regarding 40% of world crude oil production.
Countries like Saudi Arabia, Iraq and several Gulf states reported that they will cut their production to support market stability.
Oil prices spiked when Russia invaded Ukrainein February 2022, but are now at pre-conflict levels.
That increase contributed to increasing inflation, which had a negative impact on the finances of many households. For this reason, last year the United States requested that production be increased to promote a decrease in the cost of energy and fuels.
image source, Getty Images
The price of gasoline in the United States shot up due to the increase in fuel prices.
Market uncertainty
In response to the announcement, a US National Security Council spokesman said: “We do not believe cuts are advisable at this time given market uncertainty, and we have made that clear.”
Saudi Arabia to reduce production by 500,000 barrels per day, while Iraq will decrease around 211,000. The United Arab Emirates, Kuwait, Algeria and Oman will also implement cuts.
A Saudi energy ministry official said it was “a precautionary measure aimed at supporting the stability of the oil market.”
Analysts expect an increase in oil prices, which are currently around US$80 a barrel.
A PVM company consultant told Archyde.com that prices might rise by “up to $3” a barrel, while the head of investment firm Pickering Energy Partners estimates prices might rise by $10.
a significant move
Analysis by Sameer Hashmi, business correspondent in the Middle East
This surprise announcement is significant for several reasons.
Despite price fluctuations in recent months, there were concerns that global demand for oil would exceed supply, especially towards the end of the year.
Analysts expect oil prices to soar following this announcementwhich might potentially put more pressure on inflation, worsening the cost of living crisis and increasing the risk of recession.
Interestingly, this announcement comes a day before the meeting of OPEC and its allies (known as OPEC+). Several member countries gave indications that they would maintain the same production policy. For this reason, the decision to make new cuts has been a great surprise.
Other members of the group may announce voluntary cutbacks, further reducing supplies.
image source, Getty Images
Opec members Angola, Nigeria and Malaysia are already faltering on existing monthly supply targets
The move will likely further strain ties between the United States and the OPEC+, led by Saudi Arabia. The White House had asked the group to increase supply to lower prices and control Russian finances.
The announcement also evidences the close cooperation between oil-producing countries and Russia.
new cuts
The latest cuts are added to another one announced by OPEC+ in October of last year of two million barrels per day.
That measure was implemented despite calls from the United States and other countries for oil producers to pump more crude.
At the time, President Joe Biden said he was “disappointed by short-sighted decision”.
OPEC’s allies include Russia.
Moscow has said it will extend its production cut of half a million barrels a day until the end of the year.
Russia’s invasion of Ukraine in February last year sent energy prices soaring on concerns over oil supplies. The price of Brent crude, an international benchmark, reached a maximum close to 130 dollars per barrel.
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