According to the Organization of the Petroleum Exporting Countries Plus (OPEC+), oil output will be reduced by a sizable amount.
The declaration said the OPEC+ members would decrease their oil output by 2 million barrels daily. The price of gas and oil would soar if this scale were to be reduced.
An ongoing increase in gas and oil costs is already having a negative impact on the entire planet. The issue will worsen with the gathering of OPEC+ oil-producing nations.
Reducing petrol costs ahead of the midterm elections is US President Joe Biden’s duty. However, with the development, the US and Saudi Arabia are anticipated to increase in tension.
The action is “shortsighted,” the White House said in a statement from the US. Instead, the government 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.”
In 2016, OPEC+ was established, consisting of 13 OPEC countries and 11 non-OPEC members. The organization defended its choice, stating that it was brought on by the unpredictable market conditions and the catastrophic oil market circumstances facing the world economy.
Moreover, the members are unsure of what the gas cut’s impact on the world market will be at this time because it has recently decided on the production cutback.
One hundred million barrels of oil are used worldwide each day. Accordingly, depending on how the oil produced by OPEC+ countries is distributed, a reduction of 2 million barrels should have a significant impact.
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Why make a cutback on production
Although it is justified as a precaution taken by the nations in light of the present market conditions, it is believed to be Saudi Arabia’s plan to raise oil and gas prices to benefit the nation.
Following a decline of $90 per barrel in September of last year, the price per barrel is now $120. Therefore, a reduction in supply would result in a further rise in the price per barrel.
Aside from that, Yasser Elguidi of Energy Aspects claimed that Saudi Arabia is lobbying for the production decrease because it wants to drive barrel prices above the $100 mark.
As a result of the action, the market will become more aggressive, and the supply will be limited, raising prices. The people were obviously shocked by OPEC’s plan.
“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 stated that OPEC’s action represents a shift in the organization’s current objectives. Because of the lockdowns, the organization had to curtail output during the pandemic. The reduction in output, however, is at odds with the trend now that demand is increasing.
Others perceive this as a snub of Biden’s request to the agency. The US president traveled to Saudi Arabia to request more production. However, the decision might be viewed as Saudi Arabia’s reprisal for problems between the two countries.
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It should be mentioned that Biden implicated Saudi Crown Prince Mohammed bin Salman in the assassination of journalist Jamal Khashoggi.
“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,” stated Jacques Rousseau from ClearView Energy Partners.
“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