OPEC+ alliance agrees to cut oil production, boosting prices
5:50 AM EST, December 1, 2023
On Thursday, a meeting of the OPEC+ countries, a coalition of oil producers, took place. As reported by Reuters, the organization plans to reduce oil production by approximately 2 million barrels per day. Russia, among others, is expected to introduce significant restrictions. Consequently, oil prices are on the rise.
The OPEC+ countries have resolved to increase restrictions on oil production, according to data confirmed by both Reuters and Bloomberg. It seems that Saudi Arabia, having voluntarily reduced its oil production by around 1 million barrels a day since July, has persuaded the rest of the exporting countries and their allies to join the restrictions. Other members are expected to reduce production by another 1 million barrels, potentially bringing the total decrease in extraction to roughly 2 million barrels per day.
Cheaper Oil Disadvantageous for OPEC+
Analysts quoted by the agency note that the OPEC+ countries are worried about a potential surplus in the market. The decision to increase restrictions could be attributed to falling oil prices, which have dropped by about 10 percent since their September peak.
The decision will probably be advantageous for the producers. On Thursday afternoon, oil quotes on the London Stock Exchange increased by 1.4 percent, reaching $84.24 per barrel. The price increase started even before the meeting, as the market feared further restrictions. It's also worth noting that oil prices had dropped at the beginning of the week.
Will Russia Participate in the Production Cuts?
One of Reuters' sources stated that one of the countries most significantly reducing oil production is Russia. In their case, production cuts may total around 500,000 barrels a day. However, according to Bloomberg, the reduction is closer to 300,000 barrels.
Giovanni Staunovo, an analyst at UBS Group AG, suggests that the actions of the OPEC+ alliance are driven by the fear of decreased demand in early 2024. "If the news is confirmed, it will mean that OPEC+ aims to preserve control over oil," he stated.
Looking a bit further into the future, the decision by OPEC+ may influence fuel prices at gas stations and indirectly contribute to a decrease in inflation.
