Image Source: TASS
In response to concerns that a worldwide recession may reduce demand, the oil exporting nations of the world have decided to raise output next month.
The Organization of the Petroleum Exporting Countries and its Allies (OPEC+), which also includes Russia, announced on Wednesday that it would increase its daily production by 100,000 barrels in September.
US President Joe Biden has not attended an OPEC meeting since visiting Saudi Arabia last month. As the largest oil producer in the alliance, the nation was pressed by Biden to start pumping more.
As Western embargoes on Russian oil have constrained supplies globally, prices have been rising for months. These high prices have enabled the biggest oil firms in the world to make record profits, despite the fact that millions of people are facing rising fuel costs.
In June, the price of a gallon of ordinary gasoline in the US reached $5 for the first time. However, prices have since sharply declined.
The price of Brent oil, the standard for all other crudes, also reached a high of $139 per barrel in March, just after Russia invaded Ukraine. However, Brent is currently trading at around $100 because speculators worry that a worldwide recession will weaken demand.
Following OPEC’s statement on Wednesday, both the North American benchmark, West Texas Intermediate crude, and Brent crude initially increased as investors anticipated a larger production increase. However, by midday, prices had dropped by around 2%.
According to Hazel Seftor, senior research analyst for global oil supply at Wood Mackenzie, a production boost only changes the supply picture a little because it only affects a small portion of total output and is much smaller than rises in recent months.
Seftor continued, despite the fact that it was the group’s smallest increase since May 2021, when it began easing production curbs imposed during the pandemic, that the increase was “important in that it reiterates the OPEC+ group’s commitment to controlling the market.”
Critically low oil stock levels
Even so, on Wednesday, OPEC expressed concern that after 2023, the world’s supply might not be able to keep up with demand.
It claimed that among the 38 members of the Organization for Economic Cooperation and Development, which comprises the largest nations in the world, emergency oil supplies are currently at their lowest points in more than 30 years.
Global oil stockpiles “remain critically low,” the International Energy Agency warned in a report last month, posing a particular risk to emerging countries.
OPEC+ has been attempting for months to restore production cuts that were implemented during the pandemic when oil demand plummeted.
The European Union agreed to reduce its imports of Russian crude by 90% before the end of the year, and the cartel responded by agreeing to increase production to make up for a decline in demand for Russian oil.
OPEC+ agreed to increase production by 648,000 barrels per day in July and August. However, several nations have not lived up to their commitments, according to a Reuters study published earlier this week.
As a result of “chronic underinvestment in the oil sector,” OPEC claimed on Wednesday that the production capacity of many of its members was “severely limited.”
Opinions expressed by California Gazette contributors are their own.
