On Monday, September 5, the OPEC+ meeting decided to reduce oil production. Although the reduction seems symbolic, it shows the cartel’s potential determination to be flexible on changing demand conditions.
OPEC and its allies, including Russia, have agreed to cut output by 100,000 barrels per day since October, representing about 0.1% of global demand. OPEC+ may thus try to cope with macroeconomic difficulties and counter a potential increase in supply from Iran. Saudi Arabia had already stressed that it would cut production as soon as Iran, with the entry into force of the nuclear agreement, began pumping oil to global markets once sanctions were lifted.
It seems, however, that investors considered the decision to cut production largely symbolic, given the previous failure of some member countries to meet production targets. Saudi Arabia also stated at yesterday’s meeting that OPEC+ is willing to take further steps to support the global oil market if necessary.
Since the beginning of June, oil prices have fallen by more than 25%. The reason? As interest rates rise, economic growth may decline, threatening recession or at least an economic slowdown and a drop in demand. This, in turn, could put pressure on the oil market. Nonetheless, a reduction in the price of crude oil, by almost 30 % in a quarter is good news for consumers, as it could lower the high inflation.
According to the EIA’s projections, global consumption of crude oil and liquid fuels will average 99.4 million barrels per day throughout 2022, up 2.1 million barrels per day from 2021. EIA projects that global consumption of crude oil and liquid fuels will increase by another 2.1 million barrels per day in 2023 to average 101.5 million barrels per day.