Cartel members of oil-producing OPEC countries are not adjusting their oil production, they announced after a brief meeting on Sunday. It was feared that lower production would lead to higher prices, but that is not the case. However, the price of oil remains difficult to predict.
Production deals entered into by OPEC and countries like Russia and Kazakhstan typically have a major impact on the price of oil. Less oil when demand is high leads to high prices and vice versa. That price in turn influences the price we pay at the pump for petrol or diesel.
An uncertainty about the price of oil (and thus how much you have to pay at the petrol station) has now been removed. But multiple factors make it difficult to estimate how the price will develop.
For commodity traders, for example, it is now mostly a question of waiting to see what the consequences of new Western sanctions against Russia will be. That country is one of the world’s largest oil producers.
The G7 countries and the European Union agreed on a price ceiling for Russian oil on Friday. Shipping companies and insurers are prohibited from participating in the trade of Russian oil if it sells for more than $60 (about 57 euros) a barrel. The EU has also been banned since Monday from importing seaborne Russian oil.
Additionally, tensions in China are causing uncertainty over oil prices. The world’s second-largest economy is in trouble due to corona lockdowns and a crisis in the real estate sector. As a result, the demand for oil may decrease.
This weekend, however, some major cities in the Asian country announced the relaxation of the strict coronavirus policy. This could in fact stimulate economic growth.
Production was cut by 2 million barrels a day in October
For several years, OPEC, with Saudi Arabia as its unofficial leader, has been working with Russia and some other non-members. This so-called OPEC+ decided in October to pump two million fewer barrels of oil a day until the end of 2023.
This was done to avoid a drop in prices. They argued that economic downturns have reduced demand for the raw material and that intervention was therefore warranted.
This angered the United States, which accused the Saudis of siding with Russia in the war with Ukraine. In principle, higher oil prices are good for Russia’s war chest. Western consumers see these price increases reflected in high inflation figures.
