This week, prices for oil increased to $87 per barrel after the OPEC+ group of oil-producing nations has announced a reduction in production of 2 million barrels per day. This will be the largest decrease in OPEC+ production of oil since the year 2020, and could add stress to the global markets for energy currently afflicted by the Russia-Ukraine dispute, Bloomberg reported. This comes in response to recent increases in oil prices caused by the war between Russia and Ukraine. In the end, the OPEC+ group hopes that by cutting production, they can aid in stabilizing prices and stop further economic damage. Certain members voiced concerns about what impact this could have on their economies and the decision not to reduce production.
1. What reaction did the oil price have to the news of the OPECplus output cut?
The day before, the price of oil increased after OPEC (Russia) as well as OPEC+ agreed to cut their production, despite being dissuaded by Joe Biden’s demands to ensure steady production. OPEC+ is the Organization of the Petroleum Exporting Countries. They met on Sunday, and decided to cut production by 500,000 barrels a day from May through June. The output cut was more than what analysts had expected which led to the oil price rising. Brent crude crude rose 4.4 percent, reaching $66.37 per barrel. Meanwhile, U.S. West Texas Intermediate crude crude increased 4.2 percent, reaching $63.01 per barrel.
2. How much would the output cut affect the global market for energy?
OPEC as well as Russia’s decision to reduce oil production be a major impact on global energy markets. The markets around the world will experience at least 1 million extra barrels daily from the production decrease. This should help offset any negative effects caused by the coronavirus epidemic on global demand for oil and could assist in stabilizing prices. This output reduction is likely to be beneficial on the economy globally, because it can help decrease the cost of energy-related inputs.
3. What is the way that OPEC+ impact oil production and what’s it’s purpose?
OPEC+, a consortium made up of oil producing nations, which has come together to control the world’s oil market. The group comprises OPEC members and non-OPEC members that are willing to cooperate with OPEC to stabilize the global oil market. The group was created in the year 2016 as a response to the oil market crisis that began in 2014. OPEC+ is a group that has succeeded in reducing volatility and helping to maintain steady prices. It’s been able increase oil production in instances of an increase in demand. Because of the low demand for oil in the wake of the COVID-19 disease the group made the decision to cut down on production of oil.
4. What made the company decide to cut production?
OPEC and Russia’s decision to cut oil production has been an attempt to address the current marketplace conditions. The group decided to reduce production of oil to help support prices, despite low global demand. In the event that the market changes the move is expected to cause oil prices to rise in the near-term. It is yet to be decided how much this reduction in production will last and whether or not it will result in an increase in oil costs over the longer term.
A Quick Summary
These reductions are part of the US’s effort to cut its dependency on oil . They will likely raise the cost of gasoline in the short term. But they are also an indication that the US has lost its power on the global oil market. And that can have long-term effects on the economy of the US and its influence in the world.