"OPEC+ to Weigh Production Cut to Bolster Oil Prices"

By: Benoit Faucon 10/02/2022

OPEC is considering reducing production to help prop up falling oil prices on Wednesday of this coming week. I thought this was interesting because we were talking about the way oil prices and democracy are correlated in oil producing countries. They are considering a cut of more than 1 million barrels a day. The article explains that this move could "play a role in making recessions worse in some countries". The U.S. has asked OPEC to pump more oil. An increase over the summer months was made especially ahead of Biden's trip in August but OPEC is now working to reverse those steps. The U.S. is responding by starting to access its stockpiles. The oil prices have been falling partly due to a slow down in production in China which is still subject to many covid restrictions. OPEC countries are meeting on Wednesday in Vienna to discuss production changes. The option to cut production is backed by Russia which is OPEC's "largest non-OPEC partner". The article explains the White House has not yet made a forecast of how the production changes might impact the overall economy. This is not the first time OPEC has recently considered cutting back production. The article states, "OPEC+ agreed last month to cut oil production for the first time in over a year, saying it would cut about 100,000 barrels a day amid fears of a global recession. The move ended an 18-month era of production increases for OPEC+. The group slowly brought crude back onto the market after a dramatic cut during the pandemic when demand plunged." Oil prices still play a major role in our global economy and energy supply. With energy 'crunches' in the EU especially and elsewhere, a cut in production does not seem to bode well. However, the article finishes saying, "In one way, an OPEC+ cut won’t make much meaningful difference in the day-to-day oil market. The group has been undershooting its targets by more than 3 million barrels a day for much of the year, with Russian production falling and big producers like Nigeria and Angola struggling to invest enough to raise output.". This could mean that day to day prices might not be affected that much. Nonetheless, these cuts to production could be the signs of a future trend. 

Gabriel Ham

10/02/2022

https://www.wsj.com/articles/opec-to-weigh-production-cut-to-bolster-oil-prices-11664734482?mod=hp_lead_pos1