After some of the biggest oil exporters in the world surprised the market by saying they would cut production, oil prices went up.
As trading began, the price of a barrel of Brent Crude oil increased by more than $5, or 7%, to over $85 per barrel.
On Sunday, Iraq, Saudi Arabia, and a few other Gulf states said they would cut production by more than one million barrels daily.
Oil prices went up when Russia invaded Ukraine, but they have returned to where they were before the conflict.
But the US has been asking energy producers to make more so that energy prices will go down.
Inflation, the rate at which prices go up, went up last year because energy and fuel prices were high. This made it hard for many people to pay their bills.
When asked about the latest cuts, a US National Security Council spokesperson said, “We don’t think cuts are a good idea right now because the uncertainty of the market, and we’ve made that clear.”
The members of Opec+ are making less oil than they used to. This group makes up about 40% of the crude oil in the world.
Saudi Arabia is cutting oil production by 500,000 barrels per day, and Iraq is cutting production by 211,000. Also cutting back are the United Arab Emirates, Algeria, Kuwait, and Oman.
The Saudi Press Agency quoted a Saudi energy ministry official saying that the move was a “precaution” meant to stabilize the oil market.
Nathan Piper, an independent oil analyst, told the BBC that Opec+’s move was a way to keep the price of a barrel of oil above $80 in the medium term. But a weakening global economy could hurt oil demand, and sanctions against Russia have had a “limited effect” on reducing oil supplies.
A significant move
Several things make this sudden news important.
Even though oil prices have gone up and down in recent months, there were worries that the world would need more oil than it could provide, especially at the end of the year. After Sunday’s news, oil prices may have gone up, which could put more pressure on inflation, worsening the cost-of-living crisis and raising the risk of a recession.
This news comes just one day before the meeting between Opec and other countries. Members showed signs that they would stick to the same production policy, which means there wouldn’t be any new cuts. This is why it comes as such a shock. More group members will probably say they want to leave alone, putting more pressure on supplies.
This will also make it harder for the US and Opec+, led by Saudi Arabia, to work together. The White House had asked the group to make more supplies to keep prices from going up and keep an eye on Russia’s finances.
But Sunday’s news also shows how closely Russia and countries that do oil work together.
The latest cuts are on top of the two million barrels per day that Opec+ said it would cut in October of last year (bpd).
But oil producers cut their output last year, even though the US and other countries asked them to pump more Crude.
When the Opec+ group said it would cut production in October, US President Joe Biden said he thought the decision was short-sighted.
The Opec+ group comprises the Organization of Petroleum Exporting Countries (Opec) and other countries, like Russia.
Russia has said it will stick to its plan to cut production by 500,000 barrels per day until the end of the year.
When Russia invaded Ukraine in February last year, energy prices went through the roof because people worried about the oil supply. At one time, a barrel of Brent Crude was worth close to $130.
The politics behind oil prices
The latest decision by Opec+ is essential not only for oil markets but also for geopolitics.
The fact that the Saudi-led cartel made this decision just three months after President Joe Biden’s controversial trip to Saudi Arabia to try to convince Crown Prince Mohammed Bin Salman to pump more barrels to lower prices is a huge blow to the White House.
The move could increase oil prices and make it harder for the West to stop Russia from using oil money to pay for its war in Ukraine.
Many countries will see this sign that major oil producers, especially Saudi Arabia, are siding with Russia to protect the oil market.
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Everyone in the group agreed with the choice, and after a 30-minute meeting, the energy ministers from Opec+ also agreed.
Even though this is a big cut, it would have less of an effect on oil supplies around the world because several members of Opec+ already pump much less than their official quotas.
But that might not be enough to calm the oil markets in the coming days.
