In a move to address persistently low crude oil prices, the OPEC oil cartel, spearheaded by Saudi Arabia and joined by allied producers including Russia, announced additional production cuts during an online meeting on Thursday. These voluntary cuts, totaling over 2 million barrels per day, are extended through the first three months of the upcoming year. Notably, Brazil will join the alliance in January, aligning one of the world’s fastest-growing oil producers with OPEC+ in their efforts to balance global oil supply.
While lower oil prices have benefited U.S. drivers with more affordable fuel, OPEC+ countries face economic challenges as their oil-dependent revenues decrease. Despite ongoing geopolitical concerns, such as the Israel-Hamas conflict, previous production cuts have not significantly impacted oil prices due to worries about excessive crude in a weakening global economy.
Saudi Arabia took the lead in deepening voluntary cuts by extending its reduction of 1 million barrels per day until March. Russia followed suit with a 500,000 barrels per day cut, joined by other OPEC+ members like Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman, each implementing smaller reductions.
Russia’s push for higher oil prices is linked to its financial strategy against Ukraine, while Saudi Arabia aims to meet its planned spending goals, requiring oil prices to reach nearly $86 per barrel, according to the International Monetary Fund’s latest estimate. Saudi Arabia seeks to diversify its economy, reduce oil dependency, and generate employment opportunities for its youthful population.
Despite these efforts, the international benchmark Brent crude has remained in the low- to mid-$80 range in recent weeks, experiencing a more than 2% drop to $80.91 a barrel following the OPEC+ meeting. U.S. crude also fell 2.5% to $75.90 a barrel in electronic trading on the New York Mercantile Exchange.
Lower oil prices have contributed to a decline in U.S. gas prices, currently averaging just below $3.25 a gallon, a 7% decrease from a month ago. However, these prices remain higher than January 2021 when President Joe Biden took office.
High inflation poses a political challenge for President Biden, prompting him to prioritize efforts to improve supply chains and alleviate price pressures. Despite OPEC+ production cuts, U.S. oil production has set records, with the International Energy Agency predicting non-OPEC+ producers to lead global oil supply growth next year.
The addition of Brazil to OPEC+ could enhance the alliance’s influence, especially considering Brazil’s record oil production in the current year. However, concerns arise that continued production cuts might diminish OPEC+’s control over oil supplies as other countries increase their output.
While fears of the Israel-Hamas conflict impacting oil supply flows have not materialized, the situation remains fluid. The International Energy Agency stated that, as of now, there has been no significant impact on oil supply flows from the ongoing war. José Chrispiniano, press secretary for Brazilian President Luiz Inacio Lula da Silva, mentioned that the invitation to join OPEC+ is under analysis.
(Source: Associated Press | MarketWatch | CNBC)
