OPEC+ has decided to cut oil production by 2 million barrels per day (bpd) in response to increasingly volatile economic and geopolitical conditions. The decision is an attempt to raise oil prices after what was a troubling year and protect against OPEC states from ongoing issues.
The Organization of the Petroleum Exporting Countries, or OPEC, is an international organization of 13 member countries whose mission is to “coordinate and unify the petroleum policies of its Member States” and “ensure the stabilization of oil markets” for consumers. Official OPEC member states are joined by 10 additional oil-producing non-OPEC nations, forming OPEC+.
OPEC+’s decision to curb oil production is based on forecasts by the organization that predict sharp decreases in global oil demand. According to OPEC’s Monthly Oil Market Report for October, global oil demand will increase by 2.7 percent in 2022, equating to 2.64 million barrels per day (mb/d), down approximately 460,000 bpd from earlier predictions. Negative economic growth is extending beyond oil markets, according to report. OPEC stated that “global economic growth has entered into a period of significant uncertainty and deteriorating macroeconomic conditions,” citing “intensifying challenges” surrounding inflation, monetary policy, and supply issues. By slowing production, OPEC intends to protect member states from expected increasing volatility in oil prices. The action, though, will increase oil and oil-product prices globally.
The United States has been outspoken in its disagreement with OPEC’s decision, though officials do agree, generally, about the current economic and market conditions. The International Energy Agency’s (IEA) most recent oil market report forecasts agree with OPEC+ about decreasing oil demand, but to a differing degree. Contrasting OPEC, the IEA has forecast a decrease of 60,000 bpd in demand in 2022 rather than OPEC’s 460,000 bpd figure.
The Biden Administration has called OPEC’s decision “shortsighted” given the conflict in Ukraine and its impact on the global economy. In response, President Biden has indicated that sales of America’s Strategic Petroleum Reserve (SPR) will persist. The intention is to mitigate OPEC’s production decrease by pushing American oil into the global market and lowering oil prices. However, current SPR inventories are reaching previous lows from 1984.
The effects will be felt by consumers worldwide, and pose a great risk to the energy security of many nations and the global economy. The U.S. Energy Information Administration (IEA) predicts a 27 percent increase in oil-fueled home heating prices for this coming winter. Europe is poised to be even more greatly affected, given the existing reduction and coming ban of Russian oil imports into an already energy-insecure region.