Warning of rising petrol prices following a reduction in Opec oil production

Some of the largest oil-producing nations in the world have decided to reduce the quantity of oil they export, a move that is anticipated to push up petrol prices globally.

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Members of Opec+, which is made up of Saudi Arabia and Russia, announced that they would reduce output by two million barrels per day.

As the global economy has slowed recently, the group claimed it wants to stabilise prices, which have plummeted.

However, the decision sparked worries about rising car insurance costs.

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Expectations that countries would reduce their oil production have already increased oil prices this week, with Wednesday’s increase of about 2% to over $93 a barrel.

The cut announced on Wednesday, according to a spokesman for the RAC motoring club, would “inevitably” result in higher oil prices, which would drive up the wholesale cost of fuel.

According to spokesman Simon Williams, “the question is whether and when merchants choose to pass these extra costs on at their forecourts.”

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Since the pandemic’s peak in 2020, the Organization of the Petroleum Exporting Countries (Opec) and its allies’ drop is the group’s largest decrease.

It occurs in spite of calls for increased production from the US and other countries, which followed a springtime rise in oil prices due to disruptions from the Ukraine conflict.

US President Joe Biden was “disappointed by the short-sighted choice,” the White House said in a statement.

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The US committed to keeping oil from its national stocks released “as appropriate” and exploring additional options to try to control pricing.

The action is also likely to scuttle US-led efforts to control the price of Russian oil, a measure the US had proposed to stop money from entering the country and going toward military spending.

In response to concerns that the world economy is poised to enter a recession, Opec members justified their choice as a response to severe “uncertainty” about future oil demand.

Suhail al-Mazroui, the energy minister for the United Arab Emirates, told reporters that the decision was not political as Opec+ members gathered in Vienna to talk about the proposals.

Crude Oil Politics:

The most recent OPEC+ decision has implications not just for the oil markets but also for geopolitics.

A major setback for the White House is the Saudi-led cartel’s decision, which was made barely three months after President Joe Biden’s contentious trip to Saudi Arabia to persuade the country’s de facto ruler, Crown Prince Mohammed Bin Salman, to pump more barrels to lower prices.

The action not only runs the risk of driving up oil prices but also jeopardises Western efforts to limit the amount of money that Russia receives from oil sales that it uses to fund its conflict in Ukraine.

Many nations will interpret this as a blatant sign that the world’s largest oil producers, particularly Saudi Arabia, are supporting Russia in an effort to regulate the oil market defensively.

The OPEC+ energy ministers adopted the plan after a brief discussion that lasted only 30 minutes, suggesting that the choice was broadly supported.

Several OPEC+ countries are already pumping much below their statutory quotas, so even while this is a sizable reduction in terms of oil markets, the actual impact on the global supply on the ground would be less.

However, it’s possible it won’t be sufficient to soothe the oil markets’ agitation in the days to come.

The surge in consumer costs that slammed nations all over the world early this year was mostly caused by higher oil prices, which also increased political tensions by driving inflation rates to levels not seen in decades.

Read More: The US Agree to trade Russian Oil for Pakistan

Even if the cost of many other necessities, such as food, has been increasing, the more recent decline had given consumers some solace.

The price of a barrel of Brent Crude oil fell to $84.06 in late September from highs of almost $130 in early spring.

It was an odd time to reduce production, according to Caroline Bain, chief commodities economist for research firm Capital Economics, despite declining oil prices and worries about the state of the global economy.

“Worldwide oil stocks are at a historically low level, and high prices have not yet meaningfully impacted demand,” she continued.

Capital predicted a 1% decline in world supplies as a result of the restrictions, analysts stating that the impact is likely to be less serious than its size might suggest because several countries were already producing less than they had promised.

The output drop was the “worst case scenario people were waiting for,” according to Kathleen Brooks, director of Minerva Analysis, and it would have a negative impact on UK financial markets and fuel concerns that prices will continue to climb throughout the economy.

We “might not be there yet,” she remarked, “changing the narrative in terms of peak inflation.”

 

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