The grouping of the world’s largest oil-producing countries, the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+, decided to cut oil production by 2 million barrels per day (bpd).
Why are they slashing oil prices?
- Oil prices skyrocketed after Russia’s invasion of Ukraine in February, and have since begun to soften over the past few months, before dropping sharply to under $90 in September due to fears of a recession in Europe and reduced demands from China because of its lockdown measures.
- This cut is the biggest of its kind since 2020 when OPEC+ members slashed outputs by 10 million bpd during the Covid-19 pandemic. The reductions would boost prices and be extremely beneficial for the Middle Eastern member states, to whom Europe has turned for oil after levelling sanctions against Russia since it invaded Ukraine.
- OPEC+ members are concerned that a faltering global economy would reduce the demand for oil, and the cuts are seen as a way to protect profits. Increased oil prices, which first occurred during the invasion of Ukraine, have helped Saudi Arabia, one of the founding members of OPEC, become one of the world’s fastest-growing economies.
What is OPEC?
- The Organisation of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental Organisation (of 14 nations), created at the Baghdad Conference on September 10–14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
- OPEC’s objective is to coordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.
- As of September 2018, the OPEC accounted for an estimated 44 percent of global oil production and 81.5 percent of the world’s “proven” oil reserves, giving OPEC a major influence on global oil prices that were previously determined by the so-called “Seven Sisters” grouping of multinational oil companies.
- It is headquartered in Vienna, Austria.
What is OPEC+?
OPEC+ refers to the alliance of crude producers, who have been undertaking corrections in supply in the oil markets since 2017. OPEC plus countries include Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.