🛢️ drum up

Falling oil prices are prompting OPEC+ to take drastic measures

The cartel's 23 oil-producing members will discuss cutting output by 1 million barrels per day.
Taking a big step to cut production.
Taking a big step to cut production.
Photo: Alexander Klein (Getty Images)
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The Organization of the Petroleum Exporting Countries (OPEC+), a cartel of 23 oil-producing countries, will discuss tightening output by more than 1 million barrels per day (bpd) at its Oct. 5 meeting in Vienna.

The news led to West Texas Intermediate (WTI) crude futures—one of the three major benchmarks in oil pricing—surging more than 4% to above $83 per barrel today (Oct. 3).

Oil prices have been falling for four months straight. Two of the benchmark indices—WTI and Brent—even hit eight-month lows last week.

A quick look at OPEC countries and their allies

What’s pushing oil prices down?

🔒 China’s zero-covid lockdown policy has created economic pressures and spurred oil price shocks.

🏦 Interest rate hikes to curb inflation work by quelling economic demand–and thus demand for oil, causing prices to drop.

💲 A strong dollar is bad news for the oil markets because it makes the dollar-priced commodity expensive for other markets.

🇷🇺 Russian sanctions on oil aren’t hitting fast enough. A price cap is apparently coming in December, but implementation will be tricky—especially if China and India don’t come on board.

OPEC+ is open to curbing supply

The last time OPEC+ agreed to a drastic production cut was in 2020, when coronavirus crippled demand. Since then, the cartel has been raising output bit by bit.

As recession fears pushed oil prices down, OPEC+ agreed to cut production by 100,000 bpd. It wasn’t enough to make an actual impact—JPMorgan Chase estimates the output needs to be lowered by at least 500,000 barrels a day to stabilize prices.

The West, especially the US, has been asking Saudi Arabia to increase output so importers can reduce reliance on Russian oil. By downsizing supply, OPEC+ is snubbing the Joe Biden administration and doing what it wants.

Russia’s skin in the oil price game

The suggestion to cut the production sharply has apparently come from Russia.

Cuts would benefit Russia. “[The country] will need to find new buyers for its oil when the EU embargo comes into force in early December and will presumably have to make further price concessions to do so. Higher prices beforehand—boosted by production cuts elsewhere—would therefore doubtless be very welcome,” commodity analysts at Commerzbank wrote in a note.

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