What’s Going On Here?Reports out over the weekend suggest OPEC+, a group of oil-producing nations, is considering cutting oil production. What Does This Mean?OPEC+ has been steadily increasing oil supply over the past two years, after slashing production in the dark days of Covid-19. But with the global economy cooling down, so-called “black gold” has lost its luster, and prices have seen a 25% drop in the past three months. That’s bad news for the group, especially since many members – like Saudi Arabia and Russia – rely on oil revenues to cover government spending. It’s no wonder, then, that when the group meets on Wednesday, cutting production by over a million barrels per day come November could be up for discussion. That drop – about 1% of global oil supply – would mark the biggest cut in production since the pandemic. Why Should I Care?For markets: The worst is yet to come.
All else being equal, lower supply will mean more competition for oil, so it’s no surprise that Brent crude – a key oil benchmark – jumped 4% on Monday. But prices might just be beginning their upward climb. See, western sanctions on Russian oil exports are due to tighten later this year, which could further hit supply. That might be why Goldman Sachs thinks Brent crude will hit $100 a barrel over the next three months and climb to $105 in the space of six – a far cry from the current $89 asking price.
The bigger picture: This won’t pour oil on troubled waters.
With energy prices already adding fuel to the fire of global inflation, this is the last thing many countries will want to hear – including the US. There, the government’s been trying to lower fuel prices ahead of next month’s crucial midterm elections. And it’s not about to take reduced oil production lying down: some US politicians have suggested that if the plan does go ahead, the US should cut supply of airplane parts to Saudi in retaliation. | 